Dollar Trades Near Two-Week Low Before Fed's Bernanke Speaks

By Kosuke Goto

Aug. 22 (Bloomberg) -- The dollar traded near the lowest level in more than two weeks against the yen on speculation Federal Reserve Chairman Ben S. Bernanke will signal he favors keeping interest rates low as credit-market losses widen.

The U.S. currency was set for its first weekly loss versus the euro since July 11 and slid against the yen a deepening housing recession and a rebound in oil prices will prolong the nation's economic slump. The New Zealand and Australian currencies headed for weekly gains on speculation the biggest jump in commodity prices in 33 years will boost exports.

``Since the dollar has been recently heavily bought, the markets are more likely to use Bernanke's bearish comments as an excuse to sell,'' said Tomoko Fujii, head of Japan economics and strategy at Bank of America Corp. in Tokyo, the second-largest U.S. bank. ``The dollar will be on the soft side today.''

The dollar traded at 108.65 yen at 9:40 a.m. in Tokyo from 108.43 in New York yesterday, when it fell to 108.14, the weakest since Aug. 5. It has fallen 1.7 percent this week, the biggest decline since May 9. The U.S. currency was at $1.4882 per euro from $1.4899 yesterday and down 1.3 percent from the end of last week.

Japan's currency traded at 161.68 per euro from 161.57 yesterday, when it rose to 160.20, the highest since May 13. The dollar may fall to 107.50 yen and $1.4950 a euro today, Fujii forecast.

Bernanke will speak on financial stability at the Federal Reserve Bank of Kansas City's annual symposium in Jackson Hole, Wyoming at 8 a.m. local time. A text and no questions are expected.

Commodities Surge

New Zealand's dollar rose 1 percent to 71.89 U.S. cents and earlier touched 72.17, the highest since Aug. 7. Australia's dollar climbed 1.1 percent to 87.83 U.S. cents and reached 88.14, the strongest since Aug. 12.

Gold jumped the most in almost two months yesterday on the Comex division of the New York Mercantile Exchange and silver had its biggest gain since 2006. The Reuters/Jefferies CRB Index of 19 commodities surged 6.2 percent since Aug. 15, poised for the biggest weekly gain since July 1975.

``Commodities are taking off,'' said Jeff Gladstein, global head of foreign-exchange trading at AIG Financial Products in Wilton, Connecticut. ``Rising commodities reinforced the momentum of dollar selling.''

The ICE futures exchange's Dollar Index, which tracks the greenback against the currencies of six U.S. trading partners, fell for a second day to 76.120, after yesterday tumbling the most since March 26.

Oil Rebound

Crude oil prices surged 5.4 percent yesterday to $121.18 a barrel in New York, the biggest increase since June 6. The benchmark contract, which recently traded at $121.41, touched a 15-week low of $111.34 on Aug. 15.

The euro-dollar exchange rate and oil had a correlation of 0.9 in the past year, according to Bloomberg calculations based on their value changes. A reading of 1 would mean they moved in lockstep.

The dollar has gained almost 7 percent versus the euro since touching an all-time low of $1.6038 on July 15 and appreciated 0.6 percent against the yen this month as reports showed the European and Japanese economies shrank in the second quarter.

``We are in a state of consolidation,'' said Samarjit Shankar, director of strategy for the global markets group in Boston at Bank of New York Mellon, the world's largest custodial bank. ``Our own flow data shows an element of dollar bullishness is still in place.''

Rate Expectations

The yield on two-year U.S. Treasury notes was 2.02 percentage points less than that of similar-maturity German bunds yesterday, the widest since July 21, making U.S. securities less attractive to investors.

``Rate expectations have consolidated some, and oil has rebounded,'' said Benedikt Germanier, a currency strategist at UBS AG in Stamford, Connecticut. ``There's not as much oxygen for the dollar as there once was.'' He still favors the dollar on evidence growth in Europe is slowing.

Europe's gross domestic product fell 0.2 percent in the second quarter, the first contraction since the 15-nation common currency was introduced in 1999, the European Union statistics office said last week. Japan's economy shrank at an annual rate of 2.4 percent in the second quarter, the Cabinet Office said.

To contact the reporter on this story: Kosuke Goto in Tokyo at kgoto2@bloomberg.net