Euro Advances Against Yen, Dollar on Signs of Economic Recovery

By Yasuhiko Seki and Ron Harui

Nov. 2 (Bloomberg) -- The euro rose against the yen and the dollar as signs the global economy is recovering trimmed demand for the relative safety of the U.S. and Japanese currencies.

The Australian dollar climbed against all 16 most-traded currencies as Treasurer Wayne Swan said economic growth will be faster than expected and a government report showed house price increases accelerated. Japan’s currency earlier rose to the strongest level in three weeks against the dollar and the euro after New York-based CIT Group Inc. filed for bankruptcy.

“Global data still suggest that the economy is on the mend,” said Minoru Shioiri, chief manager of foreign exchange trading at Mitsubishi UFJ Securities Co. “The underlying need to invest in higher-yielding currencies through carry trades remains intact.”

The euro earlier fell to 131.01 yen, the least since Oct. 9, before trading at 132.91 as of 7:34 a.m. in London from 132.61 in New York on Oct. 30. The yen was little changed at 90.12 per dollar, after touching 89.20, the strongest level since Oct. 14.

Japan’s currency slid to 81.47 per Australian dollar from 81.05 last week, after rising to 79.47, the most since Oct. 8. Australia’s currency fetched 90.42 U.S. cents from 89.97 cents. New Zealand’s dollar was at 72.02 U.S. cents from 71.81 cents last week.

Stock Futures

The Australian dollar reversed declines against the greenback after futures signaled U.S. stocks may recover from their biggest weekly slump since May, supporting demand for higher-yielding assets. Futures for the Standard & Poor’s 500 index advanced 0.6 percent.

“Higher U.S. stock futures and an upturn of the Chinese stock market triggered buy-backs of cross currencies such as the Aussie,” said Takashi Kudo, director of foreign-exchange sales in Tokyo at NTT SmartTrade Inc., a unit of Nippon Telegraph & Telephone Corp.

Australia’s government said today the nation’s economy will expand 1.5 percent, compared with a May prediction of a 0.5 percent contraction, in the 12 months ending June 30, 2010.

An index measuring the weighted average of prices for established houses in Australia’s eight capital cities climbed 4.2 percent in the third quarter from the second, the Australian Bureau of Statistics said in Sydney today.

Benchmark interest rates are 3.25 percent in Australia and 2.5 percent in New Zealand, compared with 0.1 percent in Japan and as low as zero in the U.S., attracting investors to the South Pacific nations’ higher-yielding assets. The risk in such trades is that currency market moves will erase profits.

Risk Appetite

The euro reversed earlier losses on the improved outlook for the Chinese economy and its stock market.

The Shanghai Composite Index rose 2.7 percent after China’s manufacturing expanded at the fastest pace in 18 months and Australia’s home prices rose in the third quarter.

China’s Purchasing Managers’ Index rose to a seasonally adjusted 55.2 in October from 54.3 in September the Federation of Logistics and Purchasing said yesterday in Beijing.

“There is bright news about economies worldwide, as China’s PMI suggests the recovery in the nation’s economy is picking up,” said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. Ltd. in Tokyo. “It’s mildly positive for risk appetite and negative for the dollar and the yen.”

CIT Bankruptcy

The yen climbed earlier after CIT Group, the 101-year-old commercial lender, listed $71 billion in assets and $65 billion in debt in its bankruptcy protection, spurring investors to sell higher-yielding assets.

Japanese Finance Minister Hirohisa Fujii said events in the U.S. are causing the yen to rise against the dollar and he is watching currency movements closely.

Low interest rates in the U.S. and the bankruptcy filing of CIT Group are among the reasons Japan’s currency is rising against the dollar, Fujii told reporters in Tokyo today.

U.S. taxpayers probably won’t recoup much, if any, of the $2.3 billion in government funds that went to CIT Group, Treasury Department spokesman Andrew Williams said in an e- mailed statement.

“The U.S. financial system is far from being in perfect health,” said Mitsuru Saito, chief economist in Tokyo at Tokai Tokyo Securities Co. in Tokyo.

To contact the reporters on this story: Yasuhiko Seki in Tokyo at yseki5@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net