By Yoshiaki Nohara and Ron Harui
Nov. 9 (Bloomberg) -- The euro gained against the yen and the dollar before European reports today that may add to signs the economy is recovering, boosting demand for higher-yielding assets.
The dollar declined against 14 of its 16 major counterparts after the Group of 20 governments agreed to keep stimulus measures and remained silent on the greenback’s decline this year. New Zealand’s dollar gained by the most in more than a week as Auckland-based Fonterra Cooperative Group Ltd., the world’s biggest dairy exporter, raised its forecast for milk prices by 19 percent on growing global demand.
“Overall, economic data are turning positive,” said Masahide Tanaka, senior strategist in Tokyo at Mizuho Trust & Banking Co., a unit of Japan’s second-largest lender. “Demand remains strong for commodity and higher-yielding currencies.”
The euro gained to 134.72 yen as of 7:15 a.m. in London from 133.45 yen in New York on Nov. 6. The euro rose to $1.4950 from $1.4847. It earlier climbed to as high as $1.4952, the strongest since Oct. 26. The U.S. currency traded at 90.11 yen from 89.88 yen.
The euro strengthened as a Bloomberg News survey of economists showed German industrial output probably expanded 1 percent in September, a second month of gains. The Economy Ministry will release the data in Berlin.
Euro Zone
A European investor confidence index improved to minus 12 in November, the highest since July 2008, according to a separate Bloomberg survey. The Sentix research institute will issue the report in Limburg, Germany.
“The euro-zone economy is performing better than economies in the U.S. and Japan,” said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan’s largest currency broker. “Interest-rate differentials are also in favor of the euro.”
The yield advantage of 10-year German bunds over similar- maturity Japanese government debt widened to 1.91 percentage point on Nov. 6 from 1.89 percentage point on Nov. 5.
The dollar dropped after Alistair Darling, hosting in the U.K. a meeting of finance ministers from G-20 nations, said his colleagues decided to keep supporting their economies.
“We agreed to maintain support for the recovery until it is assured,” Darling said Nov. 7. “We are not out of the woods yet.”
New Zealand’s currency advanced against all 16 major counterparts after Fonterra said today it will probably pay its 10,500 farmer-shareholders NZ$6.05 ($4.45) for each kilogram of milk supplied in the year to May 31. That would be the second- highest since Fonterra paid a record NZ$7.90 a kilogram in the year ended May 2008.
Milk Prices
Fonterra accounts for about 40 percent of the global trade in butter, milk powder and cheese and sells products in more than 140 countries.
“Dairy prices are one of the fundamental drivers of the New Zealand dollar so with that on board we’ll see more support for the kiwi this week,” said Mike Jones, a currency strategist at Bank of New Zealand Ltd. in Wellington. “The market still has a hike in there by March next year, which is quite a bit sooner than what the Reserve Bank outlined in their most recent statement. This is further fuel to the fire.”
The New Zealand currency rose 1.5 percent to 73.58 U.S. cents, the most since Oct. 29. It gained 1.7 percent to 66.30 yen.
U.S. Dollar
The U.S. currency also dropped after the International Monetary Fund said traders are probably using the dollar to fund so-called carry trades around the world and it may still be overvalued.
The IMF said in a report published on Nov. 7 that while the dollar “has moved closer to medium-run equilibrium,” it is still “on the strong side.” The Federal Reserve last week repeated its intention to leave borrowing costs “exceptionally low” for “an extended period” as long as inflation expectations are stable and unemployment fails to decline.
“The dollar was hurt by the IMF’s observation,” John Kyriakopoulos, head of currency strategy in Sydney at National Australia Bank Ltd., wrote in a research note. “With the Fed implying it will keep rates very low until the unemployment rate starts falling, traders continued to pare expectations for rate hikes in 2010, which is weighing on the dollar.”
The U.S. currency has dropped against 15 of 16 major counterparts in the past six months as investors increased carry trades, where they borrow in countries with low interest rates to invest in higher-yielding assets.
The greenback’s decline helped push the price of gold to an all-time high of $1,105.11 an ounce today in Singapore, as demand increased for the precious metal as a store of value.
Interest Rates
Benchmark interest rates of 0.1 percent in Japan and as low as zero in the U.S. compare with 3.5 percent in Australia and 2.5 percent in New Zealand, making the yen and dollar favored targets for investors seeking to fund carry trades.
The dollar may fall further as economists forecast the trade deficit in the U.S. probably widened in September, reflecting growing demand for foreign oil and automobiles.
The gap between imports and exports increased to $31.8 billion from $30.7 billion the prior month, according to the median of 60 estimates in a Bloomberg News survey ahead of the Commerce Department’s Nov. 13 report.
Chinese Premier Wen Jiabao called on the U.S. to keep its deficit at an “appropriate size,” saying that it would be conducive to stability and global economic recovery, Reuters reported.
The Dollar Index, which the ICE uses to track the currency against those of six major U.S. trading partners, fell to 75.331 from 75.819 on Nov. 6. The index earlier today touched 75.325, the lowest since Oct. 23.
To contact the reporters on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net.
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