Yen Nears Two-Week Low as Recovery Optimism Curbs Safety Demand

By Yoshiaki Nohara and Ron Harui

Oct. 13 (Bloomberg) -- The yen fell toward a two-week low against the euro as signs the global economic recovery is gathering momentum curbed demand for safe-haven currencies.

The yen slid against 14 of 16 major counterparts as Asian stocks extended a global rally on speculation corporate earnings are improving. The euro rose against the dollar and yen before reports forecast to show gains in German investor confidence and European factory output. New Zealand’s dollar climbed after the nation’s retail sales gained in August by the most since 2007.

“Risk appetite will stay underpinned in the near term,” said Danica Hampton, a currency strategist at Bank of New Zealand Ltd. in Wellington. “People are anticipating strong corporate earnings this week. That will support the market and help the yen weaken.”

The yen dropped to 133.16 per euro as of 7:38 a.m. in London from 132.72 in New York yesterday, when it touched 133.32, the weakest level since Sept. 25. Japan’s currency fell to 90.09 to the dollar from 89.82. The dollar was at $1.4779 per euro from $1.4773 in New York yesterday.

Japan’s Nikkei 225 Stock Average rose for a fifth day, and the MSCI Asia Pacific Index of regional shares advanced 0.5 percent. The Standard & Poor’s 500 Index increased to a one-year high in New York yesterday after Black & Decker Corp. raised its third-quarter profit forecast and Ford Motor Co. said European sales climbed 12 percent last month.

“Any repeat of the broadly positive earnings surprises seen in Q2 is likely to lead to further gains for commodity currencies at the expense of the U.S. dollar,” Gareth Berry, a currency strategist in Singapore at UBS AG, wrote in a report.

Euro-Zone Economy

The ZEW Center for European Economic Research’s index of investor and analyst expectations increased to a more-than- three-year high of 58.8 in October from 57.7 in September, according to the median estimate of economists in a Bloomberg News survey. The data is due today.

Industrial production in the 16 nations that use the euro gained 1.2 percent in August after dropping 0.3 percent in July, according to a separate survey. The European Union’s statistics office in Luxembourg is due to release the figures tomorrow.

“There’s a sense that the euro-zone’s economy is doing better than the U.S.’s,” said Yuji Saito, head of the foreign- exchange group in Tokyo at Societe Generale SA, France’s third- largest bank. “The euro will likely strengthen further.”

The New Zealand dollar advanced against all 16 major counterparts as the nation’s retail sales gained 1.1 percent in August after dropping 0.5 percent in July. Economists projected a 0.5 percent gain. Reserve Bank of New Zealand Governor Alan Bollard on Sept. 10 said he doesn’t plan to raise benchmark interest rates until the “latter part” of 2010.

New Zealand Rates

“The market will continue to push for a January or March start to the tightening cycle,” said Khoon Goh, senior economist at ANZ National Bank Ltd. in Wellington. “The currency market will be driven by what’s going on overseas, particularly ongoing weakness in the U.S. dollar.”

The New Zealand dollar advanced 0.8 percent to 73.90 U.S. cents from 73.33 cents. Australia’s currency was little-changed at 90.71 U.S. cents. It earlier touched 90.95 cents, the strongest since August 2008.

Australia last week became the first among the world’s major economies to raise borrowing costs since the beginning of the financial crisis. Futures markets show a more than 90 percent chance the Reserve Bank of Australia will raise rates to 3.75 percent by year-end.

Benchmark interest rates of 3.25 percent in Australia and 2.5 percent in New Zealand compare with as low as zero in the U.S., making the South Pacific nations’ assets attractive to investors seeking higher returns. The risk in such trades is that currency market moves will erase profits.

UBS Forecasts

The U.S. dollar will strengthen against the euro and commodity-backed currencies by less than previously estimated over the next three months, UBS AG said.

The greenback, which has dropped against all 16 of its most-active counterparts this year, will rise to $1.40 against the euro. The Australian dollar will trade at 80 U.S. cents, Canada’s loonie at C$1.12 and New Zealand’s kiwi at 65 cents, UBS said.

UBS earlier forecast the euro would buy $1.35 in three months, with the Australian and New Zealand currencies trading at 75 cents and 60 cents. One dollar would buy C$1.18, it said previously.

“The commodity bloc has strengthened sharply over the last few weeks as the global recovery continues,” wrote a team of UBS analysts led chief currency strategist Mansoor Mohi- uddin.“But we remain wary of chasing these currencies given all the good news that is priced into them.”

To contact the reporters on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net.