Dollar Falls Against Euro on Concern Housing Slump Deepened

By Ron Harui

Dec. 23 (Bloomberg) -- The dollar fell for a second day against the euro before U.S. reports today that economists estimate will show sales of new and existing homes approached the lowest level in at least nine years in November.

The yen may strengthen versus the Australian and New Zealand dollars on speculation a global recession will spur interest-rate cuts in the South Pacific nations, eroding their yield advantage. The ruble slid to the lowest level against the dollar in almost three years as Russia devalued the currency and tumbling oil prices battered its economy.

“The U.S. dollar is going to go through a period of weakness over the next few months or so,” said Joseph Capurso, a currency strategist at Commonwealth Bank of Australia Ltd. in Sydney. “The economy is very weak and it might go into a period of deflation.”

The dollar declined to $1.3978 per euro at 10:11 a.m. in Tokyo from $1.3944 late in New York yesterday. It slid to $1.4719 on Dec. 18, the weakest level since Sept. 25. The yen was quoted at 126.08 per euro following a 1.3 percent decline yesterday. It traded at 90.19 per dollar after falling 1 percent. The currency reached a 13-year high of 87.14 on Dec. 17.

The dollar was little changed at $1.4830 versus the British pound and at 1.0932 against the Swiss franc. Commonwealth Bank now predicts the dollar will decline to $1.4200 per euro on March 31, compared with its previous forecast of $1.1800.

Against the yen, Australia’s dollar was quoted at 61.65 from 61.70 and New Zealand’s dollar traded at 51.70 from 51.65 late in New York yesterday. Currency trading may be more subdued than usual because of Japan’s public holiday, Capurso said.

Russia’s Central Bank

The ruble traded at 28.3979 against the dollar from 28.4763 yesterday. It earlier reached 28.5140, the lowest level since January 2006, after a central bank official who declined to be identified said yesterday Bank Rossii allowed the currency to decline for the second time in three working days. The currency has slid 17 percent since the beginning of August.

Home resales in the U.S. fell 1 percent last month to an annual pace of 4.93 million in November, according to a Bloomberg survey of economists. The National Association of Realtors releases the report at 10 a.m. in Washington. New-home sales dropped to an annual pace of 415,000, from 433,000, a separate survey shows. The Commerce Department releases that data at 10 a.m.

For the year, the dollar strengthened 4.4 percent against the euro, 34 percent versus the British pound and 28 percent against the Australian dollar as investors bought the greenback to flee riskier assets and repay dollar-denominated loans from lenders reining in credit.

‘Don’t Blame Them’

The yen may extend this year’s 24 percent advance against the dollar, its biggest annual gain since 1987, on concern a deepening U.S. recession will convince investors to avoid buying higher-yielding assets. Japan’s benchmark interest rate is 0.1 percent, compared with 4.25 percent in Australia and 5 percent in New Zealand.

“Japan is not in the mood to invest offshore and we don’t blame them,” said Sean Callow, a senior currency strategist at Westpac Banking Corp. in Sydney. “We’re bullish on the yen in the short term.”

The yen may strengthen to 85 against the dollar in one month, Callow forecast.

A stronger yen contributed to a record 27 percent drop in Japan’s exports in November from a year earlier, a Finance Ministry report showed yesterday. Toyota Motor Corp., the world’s second-largest automaker, yesterday forecast its first operating loss in 71 years because of plunging sales and a surging yen.

To contact the reporter on this story: Ron Harui in Singapore at rharui@bloomberg.net