By Yasuhiko Seki and Ron Harui
Oct. 29 (Bloomberg) -- The yen traded near the highest in two weeks against the euro amid signs the global economic recovery is losing steam, damping demand for higher-yielding assets.
The 16-nation currency headed for a fourth day of losses against the yen as Asian stocks sank and before a report forecast to show German unemployment rose in October. The New Zealand dollar was near the lowest level in three weeks after the central bank left the key rate unchanged and signaled it won’t rise until the second half of 2010, damping demand for the nation’s assets.
“As optimism about the global economy wanes, investors will question if any other central bank besides the Reserve Bank of Australia is willing to hike rates,” said Shuzo Kakuta, senior foreign-exchange adviser at Tokyo Tomin Bank Ltd. “Emerging uncertainty about exit strategies may trigger unwinding of carry trades that were used to secure higher yields.”
The yen traded at 133.08 against the euro at 6:07 a.m. in London from 133.43 yesterday in New York. It earlier reached 132.81 yen, the highest level since Oct. 14. The dollar was at $1.4727 per euro from $1.4706 after reaching $1.4683, the strongest level since Oct. 12. The yen fetched 90.37 per dollar from 90.75 in New York.
New Zealand’s dollar was at 71.90 U.S. cents from 72.10 cents. It earlier hit 71.63 cents, the least since Oct. 5. The U.S. dollar reached as high as C$1.0821, the strongest level since Oct. 5.
The Standard & Poor’s 500 Index dropped 2 percent yesterday on concern a rally in equities this year outpaced prospects for economic growth. The MSCI Asia Pacific Index of regional shares fell for a third day, losing 1.3 percent, while Japan’s Nikkei 225 Stock Average slid 1.8 percent, the steepest drop since Oct. 2.
Economic Data
The euro headed for the longest stretch of losses since September against the yen as a Bloomberg survey of economists showed the jobless rate in Germany, Europe’s biggest economy, rose to 8.3 percent in October from 8.2 percent in the previous month. The jobs report is due today.
“Data recently released was far from being completely reassuring, fueling doubts about the sustainability of the recovery,” Sebastien Barbe, head of emerging market research and strategy in Hong Kong at Calyon, wrote in a research note today. “The euro may remain soft versus both the dollar and the yen in the short term, as risk appetite remains capped and investors book profits.”
Goldman Forecast
Goldman Sachs Group Inc. cut its forecast for third-quarter U.S. gross domestic product growth to 2.7 percent from 3 percent. The median forecast in a Bloomberg survey of 79 economists was for growth of 3.2 percent following four-straight quarters of contraction. The Commerce Department’s report on gross domestic report is due at 8:30 a.m. in Washington.
“A sense of wariness is now rife following Goldman’s forecast downgrade,” said Takashi Kudo, director of foreign- exchange sales at NTTSmartTrade Inc., a unit of Nippon Telegraph & Telephone Corp.
New Zealand’s dollar headed for its first monthly drop since February against the dollar on growing uncertainty over interest rates.
“We expect to keep the cash rate at the current level until the second half of 2010,” Governor Alan Bollard said in a statement in Wellington today after keeping the benchmark at a record-low 2.5 percent. “We see no urgency to begin withdrawing monetary policy stimulus.”
Swaps traders expect Bollard to raise rates 2.13 percentage points over the coming year, a Credit Suisse Group AG index shows, compared with bets for 2.35 points on Oct. 27.
‘Dovish Surprise’
“It’s a dovish surprise for the market,” said Imre Speizer, a strategist at Westpac Banking Corp. in Wellington. “The global mood is quite pessimistic from the last six trading sessions. There’s a good chance we will see more downside.”
The New Zealand dollar surged 25 percent against the greenback in the past six months, the biggest gain among the 16 most-traded currencies.
Gains in the yen were tempered amid speculation Japanese investors will purchase overseas assets this week in search of higher returns.
Finance companies in Japan are looking to raise about 1.7 trillion yen ($18.8 billion) for mutual funds focused on foreign assets today and tomorrow, according to data compiled by Bloomberg. Japanese investors bought 304.9 billion yen more in overseas bonds and notes than they sold during the week ended Oct. 24, figures from the Finance Ministry showed in Tokyo today.
Mexican Peso
“Domestic investors are likely to put some of their money into these mutual funds,” said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. Ltd. in Tokyo. “Rates are very low here, while the performance of emerging and other overseas markets is pretty good.”
The benchmark interest rate is 0.1 percent in Japan, compared with 4.5 percent in Mexico and 3.25 percent in Australia, attracting investors to assets in those nations.
Selling the yen today for the Mexican peso would provide a total return of 9.7 percent by the end of next March, based on Bloomberg calculations using analyst exchange-rate forecasts and the difference between the two nations’ interest rates.
Mexico’s peso fetched 6.80 yen from 6.82 yen yesterday, and Australia’s dollar traded at 81.25 yen from 81.42 yen.
The euro reversed early losses against the dollar amid speculation the Federal Reserve won’t rush to exit from monetary easing policies. Futures and options traders see a 45.5 percent chance that the Fed will maintain its record-low target lending rate at the March meeting, up from a 43.0 percent probability a month ago.
“As the Fed can’t possibly start squeezing liquidity right now, investor incentive to use dollars to secure higher yields will remain fairly strong,” said Shinichi Hayashi, a Tokyo- based dealer at Shinkin Central Bank, the central institution for Japan’s financial cooperatives.
To contact the reporters on this story: Yasuhiko Seki in Tokyo at yseki5@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net.
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