Dollar Falls as Signs of Global Recovery Spur Demand for Yield

By Anchalee Worrachate and Ron Harui

Sept. 22 (Bloomberg) -- The dollar weakened for the first time in three days against the euro and fell to the lowest level in a year as signs that the global economy is recovering spurred investors to buy higher-yielding assets.

The U.S. currency declined the most versus the New Zealand and Australian dollars among major currencies after the Asian Development Bank said regional economies will expand this year faster than initially forecast. New Zealand’s dollar climbed to a more than 11-month high against the yen after the nation’s current-account deficit shrank to the narrowest level in more than four years.

“We expect to see further weakness in the dollar in coming months,” said Ian Stannard, a currency strategist in London at BNP Paribas SA, France’s biggest bank. “There are a number of factors at work against the dollar, and those include improving global economic conditions and a return of risk appetite.”

The U.S. currency weakened to $1.4784 per euro at 8:08 a.m. in New York, from $1.4680 yesterday, after depreciating to $1.4821, the weakest level since Sept. 23, 2008. It declined to 91.38 yen, from 91.93, and to $1.6344 per pound, from $1.6217. The yen was at 135.10 per euro, compared with 134.96. BNP Paribas forecast the dollar will depreciate to $1.54 per euro and 85 yen by yen-end.

New Zealand’s dollar strengthened 1.5 percent to 65.99 yen, after climbing to 66.06, the highest level since Oct. 7. The kiwi rose 2.2 percent to 72.23 U.S. cents and touched the strongest level in more than a year. Australia’s dollar advanced 1.4 percent to 87.46 U.S. cents.

Asian Currencies

Most Asian currencies gained after the Asian Development Bank said in a report that Asia’s economies, excluding Japan, will grow 3.9 percent in 2009, faster than a March estimate of 3.4 percent. Growth may accelerate in 2010 to 6.4 percent, the bank said.

The region is leading the world’s emergence from the deepest recession since the 1930s after governments boosted spending, cut taxes and slashed interest rates. Withdrawing stimulus measures too early may derail the global recovery and lead to a protracted slowdown, the bank said.

China’s imports of coal more than tripled in August from a year earlier, reaching 11.77 million metric tons, data from the customs office showed today. The nation’s copper imports more than doubled from a year earlier.

The South Korean won was little changed at 1,203.75 per U.S. dollar, and the Singapore dollar advanced 0.5 percent to S$1.4125.

Stocks Advance

Stocks rose in Europe and Asia, reducing demand for the dollar as a refuge. The MSCI World Index of 23 developed nations added 0.9 percent to 1,140.75.

The VIX index, a measure of stock-market volatility known as Wall Street’s fear gauge, dropped 40 percent since the start of the year. The lower the index, the more inclined investors are to buy so-called risk assets such as stocks, commodities and higher-yielding currencies.

The dollar also weakened on speculation Group of 20 leaders, meeting in Pittsburgh on Sept. 24-25, will call for a reduction in global trade imbalances that may cause further gains in currencies against the dollar.

Policy makers need to promote a “sustained growth track and facilitate global adjustment, as well as structural reform which will need to be undertaken in both deficit and surplus countries,” Dimitri Soudas, a spokesman for Canadian Prime Minister Stephen Harper, told reporters yesterday in Ottawa.

‘U.S. Imbalances’

“There’s talk that world leaders may seek to address the U.S. imbalances,” said Masashi Kurabe, head of currency sales and trading in Hong Kong at Bank of Tokyo-Mitsubishi UFJ Ltd., a unit of Japan’s biggest publicly traded bank. “This may lead to weakness in the dollar.”

The U.S. trade deficit widened in July and imports gained by a record 4.7 percent, the Commerce Department said in Washington on Sept. 10. The gap between imports and exports increased 16 percent, the most in more than a decade.

The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners including the euro and the yen, fell 0.8 percent to 76.168, snapping gains at two days.

Losses in the U.S. dollar were limited before the Federal Open Markets Committee meeting at which policy makers may discuss an exit from economic stimulus measures.

The Fed will keep its target rate for overnight bank loans at a range of zero to 0.25 percent at its two-day policy meeting starting today, according to all 93 economists surveyed by Bloomberg News. Chairman Ben S. Bernanke and his colleagues may discuss how to wind down purchases of mortgage-backed securities.

‘Short Positions’

“We wait to see how much the Fed acknowledges the improvement in the data recently,” said John Horner, a currency strategist in Sydney at Deutsche Bank AG, the world’s largest foreign-exchange trader. “The risk is that dollar short positions get taken off prior to that event.” A short position is a bet an asset will decline.

New Zealand’s dollar rose for a second day versus the yen after Statistics New Zealand said the current-account deficit shrank to NZ$10.61 billion ($7.57 billion) in the 12 months ended June 30, from NZ$14.57 billion in the year through March. The median estimate in a Bloomberg survey was for a NZ$13.3 billion shortfall.

The annual deficit was 5.9 percent of gross domestic product, less than the 7.4 percent forecast by economists, and the least since the period ended September 2004.

“That’s the best number since September 2004 in GDP terms, a significant improvement,” said Imre Speizer, a market strategist at Westpac Banking Corp. in Wellington. “Appetite for risk is pretty subdued, and till we get out of the FOMC meeting it will be hard for the global rally to take another step up.”

To contact the reporters on this story: Anchalee Worrachate at aworrachate@worrachate@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net