Forex Exchange Morning Report

Daily Forex Fundamentals | Written by Westpac Institutional Bank | Aug 12 09 01:48 GMT |

Risk currencies played some catch-up with the post-NFP USD bounce, AUD, NZD and yen crosses heading lower while EUR and GBP lacked direction in the countdown to Wed's FOMC statement. US and European equity markets ignored Asia's positive lead, helping slice more than a cent off AUD/USD from early London high of 0.8390 to an 0.8276 low. NZD/USD found the 0.6760 area too tough to sustain, sliding as far as 0.6662 as it became clear that US equity investors were gloomy. Financials led the way lower (-2.9% with SPX -1.0% in its final hour) as analysts downgraded the outlook for financial insurer MBIA, along with telecoms. There was renewed focus on lender CIT Group as it delayed release of a quarterly report. EUR/USD was broadly range-bound, chopping around the mid-1.41s. USD/JPY lost about a yen from the London morning into mid-NY, then steadied around 95.80, with pressure on yen crosses consistent with a cooler risk tone. Not surprisingly, commodities including oil (-2.4%) and copper (-1%) softened. US data (productivity, wholesale inventories) were not influential enough to test whether the USD vs data correlations did change with the employment report. The $37bn auction of 3yr Treasury notes was a success, with a 2.89 bid-to-cover ratio. The 10yr T-note enjoyed the equity jitters and the auction, rallying from 3.79% to 3.68% late. US IBD/TIPP economic optimism rose to 50.3 in August. This is an improvement from last month's 46.3 and all three components rose for the month - outlook, personal finances, and federal policies. The IBD/TIPP survey makes up one part of the consumer sentiment indicators this week - the other being University Michigan Confidence due for release on Friday. US wholesale sales rose 0.4% in June, a fairly soft outcome given price gains (particularly oil) through the month. However, sales continue to run ahead of inventories, which fell 1.7% in June, setting the stage for a bounce in coming quarters as restocking occurs. The sharp drop in inventories suggests that Q2 GDP is likely to be revised down from the initial -1.0% estimate, but at the same time raising the odds of a bounce in Q3. Bank of Japan on hold at 0.10%, cautious realism. The BoJ's terse and dispassionate description of the Japanese economy is right on the money. The good news is related to the inventory cycle and policy measures. The bad news on business investment and consumption is there for all to see. As policy and inventory impacts fade, it is up to final demand to determine future direction. We are aware that the BoJ is acutely concerned about the ability of the global economy to sustain recovery beyond stimulus - or to survive a premature withdrawal of the same. UK RICS house price balance fall 8.1% in July. The prices paid component in the RICS survey improved to -8.1% this month, led by a surge in prices from the London region. Overall, the report was moderately upbeat - expected sales and expected prices increased, albeit from very low bases. UK total trade balance at -£2176m for June. The trade deficit was better than expected but deteriorated relative to last month's revised figure. Taking out oil and other ‘erratics' the goods balance improved due to stronger exports. On a volume adjusted 3month basis the deficit has reduced as export contraction slowed at a faster rate than the contraction in import growth. Outlook Despite the NZD's failure to gain on the risk-positive US employment data, we retain an upward bias on NZD/USD near term as global data momentum remains favourable for commodity currencies. Events Today Country Release Last Forecast Aus Aug Westpac-MI Consumer Sentiment 109.4 – Q2 Wage Price Index %qtr 0.80% 0.80% US Jun Trade Balance $bn –26.0 –29.2 Jul Federal Budget $bn –131 –147 FOMC Rate Decision 0.25% 0.25% Jpn Jul Corp. Goods Prices %yr –6.6% –8.7% Eur Jun Industrial Production 0.50% 0.50% UK Jul Unemployment Chg 24k 20k Q3 BoE Inflation Report Can Jun Trade Balance C$bn –1.4 –0.8 Jun New House Prices –0.1% flat Westpac Institutional Bank http://www.wib.westpac.co.nz/ Disclaimer All customers please note that this information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs. Australian customers can obtain Westpac's financial services guide by calling +612 9284 8372, visiting www.westpac.com.au or visiting any Westpac Branch. The information may contain material provided directly by third parties, and while such material is published with permission, Westpac accepts no responsibility for the accuracy or completeness of any such material. Except where contrary to law, Westpac intends by this notice to exclude liability for the information. The information is subject to change without notice and Westpac is under no obligation to update the information or correct any inaccuracy which may become apparent at a later date. Westpac Banking Corporation is regulated for the conduct of investment business in the United Kingdom by the Financial Services Authority. © 2004 Westpac Banking Corporation. Past performance is not a reliable indicator of future performance. The forecasts given in this document are predictive in character. Whilst every effort has been taken to ensure that the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties. The ultimate outcomes may differ substantially from these forecasts.

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Financial Stocks Down, Yen Gains

Daily Forex Fundamentals | Written by Easy Forex | Aug 12 09 01:39 GMT |

U.S. Dollar Trading (USD) the dollar was mixed today ending little changed against the EURO and GBP but losing ground against the risk sensitive Yen. Gains were seen against commodity currencies such as the CAD with Oil breaking below $70 a barrel and investor sentiment souring in the US session. Q2 Productivity forecast at 5.3% came in at 6.4% and Q2 Labor Costs forecast at -2.4% actually dropped -5.8% as labor demand weakened. Crude Oil Closed down $1.15 at $69.45. In US share markets, S&P ended -12 points (-1.27%) at 994, NASDAQ ended -22 points (-1.13%) at 1969 and DOW JONES ended -96 points (-1.03%) at 9241. Looking ahead, June trade Balance forecast at -28.5bn vs. -25.96bn previously and FOMC meeting widely expected to remain at 0.25%. The Euro (EUR) enjoyed modest support against the USD with traders unwilling to increase bets on the Dollar ahead of the FOMC later today. EUR/JPY dropped back below 136 Yen as stocks fell although other crosses such as the EUR/GBP supported. July German CPI is forecast at -0.1% vs. 0.4% previously was slightly better than expected at 0.0% m/m. Overall the EUR/USD traded with a low of 1.4186 and a high of 1.4111 before closing at 1.4150. Looking ahead, Industrial Production forecast at 0.3% in June. The Japanese Yen (JPY) gained heavily on the back of USD/JPY losses and risk trades being pared back. AUD/JPY and NZD/JPY led the market lower losing over 2% as the market was caught a little ahead of itself after Friday's Yen collapse. BOJ held at 0.1% and kept a cautious outlook. The Market will be looking for guidance from the FED and US treasury's Auctions tonight to see if the USD/JPY rally can continue. Overall the USDJPY traded with a low of 95.76 and a high of 97.06 before closing the day around 95.90 in the New York session. The Sterling (GBP) continued to test the low 1.6400 levels but found support and bounced into adverse conditions to give some hope to the GBP bulls that the recent rally may not be over. Junes Trade Balance at -6.5bn was worse than the -6.2bn forecast. USD strength and Risk appetite are the two main themes controlling the GBP recently so today's performance in the US stock market and FED statement are critical. Overall the GBP/USD traded with a low of 1.6432 and a high of 1.6524 before closing the day at 1.6480 in the New York session. Looking ahead, July Claimant Count forecast at 25k vs. 23k previously and ILO Unemployment forecast at 7.7% vs. 7.6%. The Australian Dollar (AUD) fell heavily as weak commodities and selling of risky assets hurt the Aussie which had benefited the most from the recent global rally. July NAB Business Confidence at 10 vs. 4 previously. The market is now poised at Key levels with 0.8200-0.8450 band expected to contain this week with risk skewed to the downside. Overall the AUD/USD traded with a low of 0.8277 and a high of 0.8389 before closing the US session at 0.8300. Looking ahead, August Westpac Consumer Confidence previously at 9.3%. Gold (XAU) kept in a tight range as the USD was mixed and safe haven flows competed with a weak commodity complex. Overall trading with a low of USD$942 and high of USD$950 before ending the New York session at USD$946 an ounce Easy Forex http://www.easy-forex.com Easy-Forex makes no recommendations as to the merits of any financial product referred to in this website, emails or its related websites and the information contained does not take into account your personal objectives, financial situation and needs. Therefore you should consider whether these products are appropriate in view of your objectives, financial situation and needs as well as considering the risks associated in dealing with those products

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Forex Exchange Morning Report

Daily Forex Fundamentals | Written by Westpac Institutional Bank | Aug 12 09 01:48 GMT |

Risk currencies played some catch-up with the post-NFP USD bounce, AUD, NZD and yen crosses heading lower while EUR and GBP lacked direction in the countdown to Wed's FOMC statement. US and European equity markets ignored Asia's positive lead, helping slice more than a cent off AUD/USD from early London high of 0.8390 to an 0.8276 low. NZD/USD found the 0.6760 area too tough to sustain, sliding as far as 0.6662 as it became clear that US equity investors were gloomy. Financials led the way lower (-2.9% with SPX -1.0% in its final hour) as analysts downgraded the outlook for financial insurer MBIA, along with telecoms. There was renewed focus on lender CIT Group as it delayed release of a quarterly report. EUR/USD was broadly range-bound, chopping around the mid-1.41s. USD/JPY lost about a yen from the London morning into mid-NY, then steadied around 95.80, with pressure on yen crosses consistent with a cooler risk tone. Not surprisingly, commodities including oil (-2.4%) and copper (-1%) softened. US data (productivity, wholesale inventories) were not influential enough to test whether the USD vs data correlations did change with the employment report. The $37bn auction of 3yr Treasury notes was a success, with a 2.89 bid-to-cover ratio. The 10yr T-note enjoyed the equity jitters and the auction, rallying from 3.79% to 3.68% late. US IBD/TIPP economic optimism rose to 50.3 in August. This is an improvement from last month's 46.3 and all three components rose for the month - outlook, personal finances, and federal policies. The IBD/TIPP survey makes up one part of the consumer sentiment indicators this week - the other being University Michigan Confidence due for release on Friday. US wholesale sales rose 0.4% in June, a fairly soft outcome given price gains (particularly oil) through the month. However, sales continue to run ahead of inventories, which fell 1.7% in June, setting the stage for a bounce in coming quarters as restocking occurs. The sharp drop in inventories suggests that Q2 GDP is likely to be revised down from the initial -1.0% estimate, but at the same time raising the odds of a bounce in Q3. Bank of Japan on hold at 0.10%, cautious realism. The BoJ's terse and dispassionate description of the Japanese economy is right on the money. The good news is related to the inventory cycle and policy measures. The bad news on business investment and consumption is there for all to see. As policy and inventory impacts fade, it is up to final demand to determine future direction. We are aware that the BoJ is acutely concerned about the ability of the global economy to sustain recovery beyond stimulus - or to survive a premature withdrawal of the same. UK RICS house price balance fall 8.1% in July. The prices paid component in the RICS survey improved to -8.1% this month, led by a surge in prices from the London region. Overall, the report was moderately upbeat - expected sales and expected prices increased, albeit from very low bases. UK total trade balance at -£2176m for June. The trade deficit was better than expected but deteriorated relative to last month's revised figure. Taking out oil and other ‘erratics' the goods balance improved due to stronger exports. On a volume adjusted 3month basis the deficit has reduced as export contraction slowed at a faster rate than the contraction in import growth. Outlook Despite the NZD's failure to gain on the risk-positive US employment data, we retain an upward bias on NZD/USD near term as global data momentum remains favourable for commodity currencies. Events Today Country Release Last Forecast Aus Aug Westpac-MI Consumer Sentiment 109.4 – Q2 Wage Price Index %qtr 0.80% 0.80% US Jun Trade Balance $bn –26.0 –29.2 Jul Federal Budget $bn –131 –147 FOMC Rate Decision 0.25% 0.25% Jpn Jul Corp. Goods Prices %yr –6.6% –8.7% Eur Jun Industrial Production 0.50% 0.50% UK Jul Unemployment Chg 24k 20k Q3 BoE Inflation Report Can Jun Trade Balance C$bn –1.4 –0.8 Jun New House Prices –0.1% flat Westpac Institutional Bank http://www.wib.westpac.co.nz/ Disclaimer All customers please note that this information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs. Australian customers can obtain Westpac's financial services guide by calling +612 9284 8372, visiting www.westpac.com.au or visiting any Westpac Branch. The information may contain material provided directly by third parties, and while such material is published with permission, Westpac accepts no responsibility for the accuracy or completeness of any such material. Except where contrary to law, Westpac intends by this notice to exclude liability for the information. The information is subject to change without notice and Westpac is under no obligation to update the information or correct any inaccuracy which may become apparent at a later date. Westpac Banking Corporation is regulated for the conduct of investment business in the United Kingdom by the Financial Services Authority. © 2004 Westpac Banking Corporation. Past performance is not a reliable indicator of future performance. The forecasts given in this document are predictive in character. Whilst every effort has been taken to ensure that the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties. The ultimate outcomes may differ substantially from these forecasts.

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Daily Financial Market Outlook

Daily Forex Fundamentals | Written by Lloyds TSB | Aug 12 09 04:04 GMT |

Overview There are a range of important events and economic data that could impact today. Amongst them is the US Fed decision on interest rates but also crucial is whether it will expand its quantitative easing programme. The decision on rates seems fairly easy: the Fed will leave them on hold at 0-0.25%. But the decision on QE is more complicated. On the one hand, the Fed has spent $243bn of the $300bn allocated in March and is set to burn through the rest before the next FOMC meeting in September, and so might want to wait until then before making any announcement. On the other hand, if the Fed waits too long that could unsettle markets and potentially create a crisis just in time for the September FOMC. Hence, the Fed will have to say something about what it intends to do about QE at this FOMC meeting. In the UK, the focus will be on the economic message contained in the Inflation Report due out today, and the press conference to follow by Mervyn King, the Governor of the central bank. This will follow the decision to spend £50bn on QE, which shocked the financial markets and some commentators. Data and events preview UK labour market data will show whether the slower pace of job losses persisted into June. With the sharp drop in gdp in Q1 and Q2, unemployment could be worst then expected. Wage inflation is low though, which may help to maintain employment. Other key data include US and EU data on trade, output and inflation. Chart a Chart b Lloyds TSB Bank http://www.lloydstsbfinancialmarkets.com Disclaimer: Any documentation, reports, correspondence or other material or information in whatever form be it electronic, textual or otherwise is based on sources believed to be reliable, however neither the Bank nor its directors, officers or employees warrant accuracy, completeness or otherwise, or accept responsibility for any error, omission or other inaccuracy, or for any consequences arising from any reliance upon such information. The facts and data contained are not, and should under no circumstances be treated as an offer or solicitation to offer, to buy or sell any product, nor are they intended to be a substitute for commercial judgement or professional or legal advice, and you should not act in reliance upon any of the facts and data contained, without first obtaining professional advice relevant to your circumstances. Expressions of opinion may be subject to change without notice. Although warrants and/or derivative instruments can be utilised for the management of investment risk, some of these products are unsuitable for many investors. The facts and data contained are therefore not intended for the use of private customers (as defined by the FSA Handbook) of Lloyds TSB Bank plc. Lloyds TSB Bank plc is authorised and regulated by the Financial Services Authority and is a signatory to the Banking Codes, and represents only the Scottish Widows and Lloyds TSB Marketing Group for life assurance, pension and investment business.

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Daily Technical Analysis

Daily Forex Technicals | Written by FX Instructor | Aug 12 09 02:59 GMT |

EURUSD Outlook The EURUSD made indecisive movement yesterday, by opened and closed at almost the same price, formed a Doji on daily chart. The market is likely to wait for FMOC meeting tomorrow regarding rate decision and quantitative easing program before making the next steps. The Fed is expected to keep the rate at 0.25% and keep it's 1.75T asset purchase program. I will write more details about this matter tomorrow. On h4 chart below we can see that the trendline support still hold preventing further downside pressure. The bias remains neutral in nearest term and I think it's better to stay out from the market for now until FMOC decision tomorrow. I am expecting range area between 1.4220 - 1.4100 today. GBPUSD Outlook The GBPUSD also made indecisive market, formed a Doji on daily chart. Today we will have BoE inflation report that should be an important catalyst to move the market significantly. After decided to continue it's quantitative easing program to GBP 175b last Thursday, I am expecting a dovish report and Sterling should remains under pressure. Technically on h1 chart below we can see that the pair is consolidating after significant bearish momentum, moving in rectangle area. A break on either side should give us clearer direction. I am expecting a breakdown and continue the bearish scenario towards 1.4350. However, a breakout to the upside should trigger further upside pullback toward 1.6660 area USDJPY Outlook The USDJPY continued it's bearish momentum yesterday, break below 96.70, bottomed at 95.75 and closed at 95.94. This fact change my nearest term outlook from bullish to bearish testing 95.00 area, but remains neutral in medium term. On daily chart below we can see that the price seems ready to test the trendline support. The CCI is about to cross the -100 line down on daily chart support the bearish scenario. A break below the trendline support and 95.00 area should trigger further bearish scenario towards 93.00. However hourly CCI just cross the -100 line up so watch out for potential upside pullback testing 96.20/50 resistance area. USDCHF Outlook The USDCHF was corrected lower yesterday, bottomed at 1.0789 and closed at 1.0818. On daily chart below we can see that actually in longer term outlook, the pair is still in range bound area. A breakout above 1.0940 should confirm further bullish scenario. However, a break below 1.0750 could bring the pair back testing 1.0589 area. The market is likely to wait for FOMC meeting tomorrow before take the next steps, so it's better to stay out for now. I am expecting a choppy market between 1.0750 - 1.0850 today. EURJPY Outlook The EURJPY continued it's bearish momentum yesterday. The pair hit my short target at 136.00 even lower, bottomed at 135.24 and closed at 135.80. On h4 chart below we can see that the trendline support has been violated to the downside indicating bullish failure and potential bearish scenario. The bias remains bearish in nearest term targeting 134.50. However, CCI in oversold area and heading don on h4 chart so watch out for potential upside rebound testing 136.50 area. Break above that area should lead us into no trading zone. After violated the trendline support to the downside, I will not surprised if the price make a pullback to the upside around the trendline area but long position is not recommended at this phase. GBPJPY Outlook The GBPJPY continued it's bearish momentum yesterday, bottomed at 157.81 and closed at 158.07. On 4h chart below we can see that the price made breakdown from the broadening formation, but retreat back inside the formation. The bias remains bearish in nearest term. However, we seem to have good support around 157.80 area. Now that the price is back inside the broadening formation and CCI about to cross the -100 line up on h4 chart, watch out for potential upside pullback testing 160.00 area. Break below 157.80 would be a bearish medium term confirmation for me towards 153.00 area. AUSUSD Outlook The AUDUSD had a significant bearish momentum yesterday, bottomed at 0.8274 and closed at 0.8288. The pair is in critical phase now, where bearish momentum seems ready to challenge 0.8261 key level in nearest term. As long as 0.8261 support area hold the bullish medium term remains intact, but as you can see on h4 chart below, the fact that the trendline support has been violated to the downside should be considered as potential threat to the medium bullish outlook. CCI in oversold area and heading up on h4 chart suggesting potential upside pressure testing 0.8350 resistance area. FX Instructor LLC www.fxinstructor.com The information has been prepared for information purposes only. The document is not intended as personalized investment advice and does not constitute a recommendation to buy, sell or hold investments described herein. This information contained herein is derived from sources we believe to be reliable, but of which we have not independently verified. FXInstructor LLC assumes no responsibilities for errors, inaccuracies or omissions in these materials, nor shall it be liable for damages arising out of any person's reliance upon this information. FXInstructor LLC does not warrant the accuracy or completeness of the information, text, graphics, links or other items contained within these materials. FXInstructor LLC shall not be liable for any indirect, incidental, or consequential damages including without limitation losses, lost revenues or lost profits that may result from these materials. Opinions and estimates constitute our judgment and are subject to change without notice. Past performance is not indicative of future results

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Forex and Dow Jones Recommended Levels

Daily Forex Technicals | Written by FXtechtrade | Aug 12 09 03:06 GMT |

EUR/USD Today's support: - 1.4110, 1.4086 and 1.4060(main), where correction is possible. Break would give 1.4040, where correction also may be. Then follows 1.4018. Break of the latter would result in 1.3994. If a strong impulse, we would see 1.3966. Continuation will give 1.3950. Today's resistance: - 1.4186 and 1.4224(main). Break would give 1.4250, where a correction is possible. Then goes 1.4268. Break of the latter would result in 1.4285. If a strong impulse, we'd see 1.4298. Continuation will give 1.4312. USD/JPY Today's support: - 95.40 and 95.18(main). Break would bring 94.94, where correction is possible. Then 94.66, where a correction may also happen. Break of the latter will give 94.48. If a strong impulse, we would see 94.20. Continuation would give 94.02. Today's resistance: - 96.13, 96.30 and 96.53(main), where a correction may happen. Break would bring 96.82, where also a correction may be. Then 97.04. If a strong impulse, we would see 97.25. Continuation will give 97.48 and 97.87. DOW JONES INDEX Today's support: - 9212.40 and 9202.50(main), where a delay and correction may happen. Break of the latter will give 9181.30, where correction also can be. Then follows 9154.46. Be there a strong impulse, we would see 9129.37. Continuation will bring 9113.50. Today's resistance: - 9326.27, 9342.12 and 9360.00(main), where a delay and correction may happen. Break would bring 9387.72, where a correction may happen. Then follows 9413.44, where a delay and correction could also be. Be there a strong impulse, we'd see 9438.65. Continuation would bring 9450.00 and 9469.68. FXtechtrade http://www.fxtechtrade.com Disclaimer: Any information presented by Nikolajs Serikovs at this very website should be in no way understood as an offer, promise or guarantee for receiving a profit or avoiding the losses. Stated here levels of support and resistance must not be construed as an investment advice or endorsement for any financial instrument. There exists no guarantee that the market would behave in accordance with the information stated here Prepared in Republic of Latvia for the worldwide distribution.

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Australian Wages Growth Stalls at 0.8% on Job Losses

By Jacob Greber

Aug. 12 (Bloomberg) -- Australian wages growth stalled last quarter as the worst global slump since the Great Depression drove up unemployment.

Hourly pay rates excluding bonuses climbed 0.8 percent from the first quarter, when they rose by the same amount, the statistics bureau said today in Sydney. The result matched the median estimate of 12 economists surveyed by Bloomberg News.

The global recession has eroded demand for Australian exports of coal and iron ore, forcing companies to postpone investment plans and hire fewer workers. Wage pressures may ease further as unemployment climbs, the central bank said last week after policy makers left the benchmark interest rate unchanged for a fourth month at a half-century low of 3 percent.

“Today’s figures will reaffirm the view held by Reserve Bank officials that current policy settings are appropriate,” said Helen Kevans, an economist at JPMorgan Chase & Co. in Sydney. “Economy-wide price pressures remain subdued.”

The Australian dollar fell to 82.67 U.S. cents at 12:17 p.m. in Sydney from 82.97 cents just before the report was released. The two-year government bond yield shed 1 basis point to 4.52 percent. A basis point is 0.01 percentage point.

The so-called wage price index advanced 3.8 percent in the second quarter from a year earlier, slowing from an annual increase of 4.2 in the previous quarter, today’s report showed.

Job Losses

Australia’s unemployment rate has risen to 5.8 percent, the highest level in almost six years, from 4.9 percent in January. Advertisements for job vacancies on the Internet and newspapers tumbled a record 51.9 percent last month from a year earlier, an Australia & New Zealand Banking Group Ltd. index showed.

A Reserve Bank survey shows the proportion of companies expecting to increase wages this year has fallen from over 90 percent to around two-thirds, the central bank said last week.

“Business surveys taken in the March and June quarters also suggest that labor-cost growth is likely to continue to moderate over the period ahead,” the central bank said in its quarterly monetary policy statement on Aug. 7.

Australia’s lowest paid workers will get no increase in the minimum wage after the Fair Pay Commission in July maintained the hourly rate at A$14.31 ($11.84).

Easing wage pressure may give central bank Governor Glenn Stevens scope to keep borrowing costs unchanged in coming months, even as evidence mounts of an economic rebound.

Consumer Confidence

The central bank said last week its next move on interest rates, which policy makers slashed by a record 4.25 percentage points between April and September, is likely to be an increase after it scrapped a prediction the economy will fall into a recession.

“The Reserve Bank will sit on the sidelines during the remainder of the year, before embarking on the next tightening cycle in early 2010,” JPMorgan’s Kevans said.

Rising consumer and business confidence have “reduced the likelihood” Stevens will cut the benchmark rate below 3 percent, the bank said. The current rate is “appropriate.”

Consumer confidence jumped 3.7 percent in August from July to close to a two-year high, according to an index released today by Westpac Banking Corp.

Business sentiment jumped in July to the highest level in almost two years, adding to evidence the economy is rebounding from the global recession, a survey by National Australia Bank Ltd. showed yesterday.

Hourly rates of pay at manufacturers increased 2.7 percent from a year earlier, the smallest gain among the 16 industries surveyed by the statistics bureau. Salaries at utility companies rose 4.6 percent from a year earlier, to register the largest gain.

Traders forecast the central bank’s overnight cash rate target will be 180 basis points higher in 12 months, according to a Credit Suisse Group AG index based on interest-rate swaps at 12:11 p.m. in Sydney. They tipped 177 basis points of gains before today’s release.

To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net

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South Korean Minister Sees Exports Rising More Than 10% in 2010

By Seyoon Kim and Shinhye Kang

Aug. 12 (Bloomberg) -- South Korea’s exports may increase by more than a tenth next year as demand from global customers picks up, Minister of Knowledge Economy Lee Youn Ho said.

“Our export competitiveness and technology have been strengthened over the years and this will play a big role once global economies pick up,” Lee, 61, said in an interview yesterday in Gwacheon. “We’re looking at an increase of about 10 percent, but we’re hoping for more” depending the world recovery, he said.

Exports, which make up more than half of Asia’s fourth- largest economy, will start rising from October, boosted by a weaker currency earlier in the year and a recovery in demand, the government said in June. The economy expanded at the fastest pace in almost six years in the second quarter as overseas shipments and household spending rose.

The ministry, which oversees trade, industry and energy policies, predicted last month that exports will fall 14.4 percent this year.

A weaker currency has helped South Korean exporters fare better than their Asian neighbors during the deepest global recession since the Great Depression. The won tumbled 28 percent against the dollar from the beginning of last year through April. Overseas shipments fell 12.4 percent in June, while Japan’s exports declined 36 percent and Taiwan’s slid 30 percent.

Higher Profits

Profits are growing thanks to robust demand for Korean-made products. Kia Motors Corp., South Korea’s second-biggest carmaker, today said its second-quarter profit more than quadrupled, helped by local and Chinese sales. Second-quarter profit at Samsung Electronics Co. climbed to the highest in more than two years, boosted by higher sales of televisions and mobile phones.

Lee said fiscal and monetary policy helped the nation’s economy weather the global slowdown, adding that policy makers shouldn’t rush to unwind measures that have supported growth.

The central bank kept its benchmark interest rate unchanged at a record-low 2 percent for a sixth straight month yesterday after cutting it by 3.25 percentage points between October and February. The government said it spent 68 percent of this year’s budget through July in an effort to frontload government sending and help the economy.

“Our fiscal and monetary policies have been prepared and implemented in a very sophisticated manner,” Lee said. “Of course, we need an exit strategy for the economy, but I don’t think this year would be a good time as the recovery isn’t strong yet. Preparation is needed, but an implementation of the exit strategy should be cautiously done.”

Stocks have soared 39 percent this year on rising investor confidence in the economy while the International Monetary Fund upgraded its forecasts this week for South Korea’s economic growth in 2009. The government on June 25 raised its 2009 GDP forecast, predicting the economy will shrink 1.5 percent this year, less than a previous estimate for a 2 percent decline.

Lee, who became minister in February 2008 with the start of President Lee Myung Bak’s administration, was chief executive officer at LG Economic Research Institute and also worked at the Federation of Korean Industries. He holds a PhD in economics from the University of Wisconsin-Madison.

To contact the reporter on this story: Seyoon Kim in Seoul at skim7@bloomberg.net; Shinhye Kang in Seoul at skang24@bloomberg.net

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Australian Consumer Optimism Rises to Two-Year High

By Jacob Greber

Aug. 12 (Bloomberg) -- Australian consumer confidence jumped this month to the highest level in almost two years, adding to signs the nation’s economy has skirted the worst global slump since the Great Depression.

The sentiment index gained 3.7 percent to 113.4 points, according to a Westpac Banking Corp. and Melbourne Institute survey of 1,200 consumers conducted between Aug. 3 and Aug. 9.

Rising consumer confidence will help Australia’s economy expand faster than expected six months ago, according to central bank Governor Glenn Stevens, who said the bank’s next move may be to increase borrowing costs from a half-century low of 3 percent. The index has climbed 27.8 percent since May, the largest three-month gain since the survey began in 1975.

“The current surge has seen sentiment rise back into solidly optimistic territory,” said Matthew Hassan, a Westpac economist in Sydney. “As far as consumers are concerned, the worst of the current downturn appears to have passed.”

The Australian dollar fell to 82.62 U.S. cents at 12:26 p.m. in Sydney from 82.99 cents just before the report was released. The two-year government bond yield shed 2 basis points to 4.51 percent. A basis point is 0.01 percentage point.

Higher consumer and business confidence have “reduced the likelihood” Stevens will cut the benchmark rate below 3 percent, the bank said on Aug. 7.

Wages Growth

With “the cash rate at an unusually low level and the global economy stabilizing, movement towards a more normal setting of monetary policy could be expected at some point,” the bank said.

A report published today showing wages growth stalled last quarter may give Governor Stevens scope to keep borrowing costs unchanged in coming months.

Hourly pay rates excluding bonuses climbed 0.8 percent from the first quarter, when they rose by the same amount, the statistics bureau said today. The result matched the median estimate of 12 economists surveyed by Bloomberg News.

Traders forecast the central bank’s overnight cash rate target will be 179 basis points higher in 12 months, according to a Credit Suisse Group AG index based on interest-rate swaps at 12:21 p.m. in Sydney.

Cash Handouts

Prime Minister Kevin Rudd’s government distributed A$12 billion ($9.9 billion) in cash handouts to households this year and is spending A$22 billion to upgrade roads, railways, hospitals and ports.

Westpac’s Hassan said confidence has also been boosted by a report on Aug. 4 showing house prices rose 4.2 percent in the second quarter, helping pare most of the decline since the start of 2008.

“The other major positive was the surprisingly strong July labor-market result, which showed an unexpected rise in employment,” Hassan said.

All five components in Westpac’s confidence index rose this month. Expectations for economic conditions over the next 12 months jumped 11.2 percent after gaining 19.6 percent in July.

“We expect the Reserve Bank to begin the cautious process of ‘normalizing’ rates in early 2010 with a quarter percentage point increase in February,” Hassan said.

To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net

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Japan Producer Prices Slide a Record 8.5% Amid Slump

By Mayumi Otsuma

Aug. 12 (Bloomberg) -- Japan’s producer prices fell at a record pace in July as oil traded lower than last year and companies required fewer materials amid a recession.

The costs companies pay for energy and unfinished goods declined 8.5 percent from a year earlier after sliding a revised 6.7 percent in June, the Bank of Japan said today in Tokyo. The median estimate of 24 economists surveyed by Bloomberg News was for an 8.7 percent drop.

The report highlights concern that deflation will become entrenched and hamper a rebound from the nation’s worst postwar recession. Bank of Japan Governor Masaaki Shirakawa said yesterday that his policy board is closely watching the decline in prices, while adding that there’s little risk of a deflationary spiral now.

“It will take a long time before producer prices return to positive territory,” said Taisuke Nakamoto, an economist at Dai-Ichi Life Research Institute in Tokyo. Weak demand “will continue to exercise downward pressure on prices.”

The year-on-year decline in costs was the biggest since the central bank started compiling the report in 1960. From June, prices rose 0.4 percent, today’s report showed.

Signs of deflation are spreading. Consumer prices excluding fresh food, the central bank’s preferred gauge of inflation, fell a record 1.7 percent in June from a year earlier. The central bank may forecast later this year that consumer prices will keep falling in the year ending March 2012 even as the economy recovers.

Delay Purchases

Expectations for lower prices ahead may prompt companies and consumers to delay purchases, eroding profits and forcing firms to cut wages. That would threaten an economy that analysts say grew at an annual 3.9 percent pace last quarter, the first expansion in a year.

A rebound in growth “will do little to counter deflationary pressure,” said Junko Nishioka, chief economist at RBS Securities Japan Ltd. in Tokyo. “It’s difficult to anticipate a change in the price environment anytime soon.”

Most of the drop in producer prices has been in reaction to record oil costs in 2008, and declines may moderate in coming months because crude plunged late last year, falling as low as $32.40 a barrel in December from $147.27 in July.

The central bank’s overseas commodity index, which shows changes in costs including oil, steel, copper and wheat, slid 44.6 percent in July from a year earlier.

Producer prices will probably decline 5.9 percent in the year to March 2010 and 2.1 percent in the following 12 months, Bank of Japan board members forecast last month.

To contact the reporter on this story: Mayumi Otsuma in Tokyo at motsuma@bloomberg.net

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China May Delay Monetary Tightening as Exports, New Loans Drop

By Bloomberg News

Aug. 12 (Bloomberg) -- The People’s Bank of China may delay tightening monetary policy until the fourth quarter after exports dropped in July, lending fell and investment growth slowed, economists said.

Exports fell 23 percent from a year earlier, the government said yesterday. Urban fixed-asset investment rose a less-than- estimated 32.9 percent in the first seven months from a year earlier. New loans plunged to 355.9 billion yuan ($52 billion), less than a quarter of advances in June.

China’s economy, which avoided following the U.S. and Europe into recession, is yet to cement a recovery because factories have too much capacity and exports are weakening, officials said this month. The Shanghai Composite Index rose 0.5 percent yesterday, snapping a four-day slide, as investors speculated that the government will refrain from reducing capital inflows.

“The slightly weaker-than-expected data means an even smaller chance of an imminent change in macro policy and lends weight to those who argue that it is too early to tighten,” said Stephen Green, head of China research at Standard Chartered Bank in Shanghai. “What was a V-shaped recovery now seems to be experiencing a little gravitational pull.”

Consumer prices will start to rise again in November, helping to trigger a shift in monetary policy, with banks’ reserve requirements rising in the fourth quarter, an interest- rate increase in the first half of next year, and “even possibly loan quotas,” Green said.

Intel, General Motors

Prices slid 1.8 percent in July from a year earlier, the biggest decline since 1999, yesterday’s data showed.

Government efforts to create jobs and stoke growth with a 4 trillion yuan stimulus package are helping the sales of companies from Intel Corp. to construction equipment-maker Komatsu Ltd. General Motors Co. reported a 78 percent increase in vehicle sales in China in July.

Retail sales rose 15.2 percent in July, more than economists forecast, the statistics bureau said yesterday.

The People’s Bank of China scrapped lending quotas in November, triggering a record 7.73 trillion yuan ($1.3 trillion) of new loans this year. M2, the broadest measure of money supply, rose 28.4 percent in July from a year earlier, yesterday’s data showed.

The central bank also slashed reserve requirements and interest rates in the final four months of last year, as the global credit crisis deepened after the collapse of Lehman Brothers Holdings Inc. The reserve ratio is 15.5 percent for big banks and 13.5 percent for small lenders. The key one-year lending rate is 5.31 percent.

Property, Stock Bubbles

Shanghai’s stock index has rallied almost 80 percent in 2009 and real-estate sales and prices have rebounded, adding to concern that asset bubbles may hamper the recovery.

China’s stock market performance is closely tracking “local perception” of monetary policy, said Howard Wang, head of the Greater China team at JF Asset Management, which oversees $50 billion. Falling exports “comfort the local market” by adding to signs that the government will not tighten policy, Wang said.

Industrial output grew 10.8 percent in July from a year earlier. That compared with a 10.7 percent advance in June and economists’ median forecast for an 11.5 percent increase.

China’s government may end the current “extremely loose” monetary policy in the fourth quarter, when the recovery is on a stronger footing, said Helen Qiao, a Hong Kong-based economist for Goldman Sachs Group Inc.

Global Weakness

The tools may include a 50 basis-point increase in banks’ reserve requirements, higher money market rates and more government guidance of lending, Qiao said.

Goldman this week raised its forecast for China’s gross domestic product growth this year to 9.4 percent, noting that weakness in the global economy would deter policy makers from tightening too soon.

Premier Wen Jiabao reaffirmed Aug. 9 that China will maintain a “moderately loose” monetary policy and “proactive” fiscal stance.

The central bank stepped up bill sales from July to mop up liquidity and the banking regulator has increased checks to ensure that lending flows into the real economy, rather than speculation. China Construction Bank Corp. President Zhang Jianguo said last week that the nation’s second-largest bank will cut new lending in the second half by about 70 percent to avert a surge in bad debt.

China’s economy expanded 7.9 percent in the second quarter from a year earlier, rebounding from the weakest growth in almost a decade.

To contact the Bloomberg News staff on this story: Kevin Hamlin in Beijing on khamlin@bloomberg.net;

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India’s 7% Growth Target Threatened as Rain Gods ‘Play Hooky’

By Kartik Goyal

Aug. 12 (Bloomberg) -- India’s 7 percent economic growth target may be jeopardized as the weakest monsoon rains in five years threaten harvests, according to economists.

The India Meteorological Department on Aug. 10 lowered its monsoon forecast for a second time this season, saying showers in the June-September season will be 13 percent below average, compared with a 7 percent shortfall estimated in June.

Deficient rains may reduce crops as India, where more than half the arable land isn’t irrigated, relies on the monsoon to produce food for its 1.2 billion people. Lower farm output may erode the purchasing power of 742 million Indians who live in the countryside, hurting Prime Minster Manmohan Singh’s efforts to revive growth in order to create jobs and cut poverty.

“The rain gods continue to play hooky,” said Rajeev Malik, a regional economist at Macquarie Group Ltd. in Singapore. A poor monsoon that results in a sizeable shortfall in farm production would “definitely reduce economic growth,” he added.

As many as 161 of India’s 626 districts have been declared drought prone, the government said yesterday. Areas under rice cultivation have declined 20 percent to 22.82 million hectares, the farm ministry said.

A below-average monsoon may shave as much as one percentage point off India’s growth in the year to March 2010, Raghuram Rajan, a former chief economist at the International Monetary Fund said on Aug. 10. India’s economy, the third-largest in Asia, may expand 6 percent in the current fiscal year, Rajan said.

2002 Drought

A drought in 2002 pared economic growth to 3.8 percent, the lowest in 11 years. The following year, the pace of expansion accelerated to 8.5 percent, the fastest since 1989, as sufficient rains returned.

A 20 percent rain shortfall may chop 2 percentage points off India’s economic growth, according to Philip Wyatt, a senior economist at UBS AG in Hong Kong. A 2 percent drop in farm output may lower gross domestic product by 1 percentage point, said economist Robert Prior-Wandesforde of HSBC Group Plc.

“We think rural demand will be negatively impacted and this is a significant negative shock,” said Tushar Poddar, an economist at Goldman Sachs Group Inc. in Mumbai. Industries catering to rural consumers will be the hardest hit, he said. Poddar estimates GDP growth would be reduced by 0.3 percentage point in the case of a 2 percent decline in farm production.

Insufficient rain has caused acreage of all major crops to lag behind year-ago levels, denting prospects for bigger harvests of rice, oilseeds and sugar cane. India, the world’s second-biggest rice producer, planted monsoon paddy crops on 5.8 million hectares less area this year because of scant rain in the main growing regions, according to the farm ministry.

Food Prices

Reduced harvests this year may also have an inflationary impact on food prices in the coming months, Prime Minister Singh said Aug. 8.

Consumer prices paid by farm workers jumped 11.52 percent in June from a year earlier after gaining 10.21 percent in May. Prices paid by industrial workers rose 9.26 percent in June from a year earlier, according to the latest government data.

The showers in June-September period are critical as abundant rains boosts farm output, putting more money in the hands of rural consumers to spend on goods such as tractors made by Mahindra & Mahindra Ltd. and soaps and personal-care products from Hindustan Unilever Ltd.

“As food prices go up, this will have a significant negative impact on rural demand,” Poddar from Goldman Sachs said. “Additionally, the summer rains prepare the ground for the winter crop, which may also be affected due to the shortfall.”

Cars, Tractors

Indian stocks fell by 1 percent on Aug. 10 on concern shortfalls in agricultural production may slow the country’s economic growth. Mahindra & Mahindra, the nation’s largest maker of sport-utility vehicles and tractors, sank 9 percent and Hindustan Unilever Ltd. declined 3.3 percent.

Still, economists such as Macquarie’s Malik said accelerating industrial output and higher government spending on rural jobs and infrastructure may help offset the impact of lower farm output on the economy.

“The share of agriculture in India’s GDP has declined to 17.5 percent from 34 percent in 1980,” Malik said. “Hence minor variations in farm output increasingly matter less for overall GDP growth.”

Malik has kept his economic growth estimate unchanged at 7 percent, saying he’ll make a final call on the forecast after a more complete report of the sowing season through August.

Finance Minister Pranab Mukherjee in his July 6 budget speech raised spending on a guaranteed-rural jobs program by 144 percent to 391 billion rupees ($8.15 billion) in the year to March 2010 and promised to provide rice and wheat to the poor at 3 rupees a kilogram.

Deficient rainfall may pose a problem to India’s economic recovery but there is no need to “press the panic button,” Mukherjee said. The government has contingency plans to deal with the situation, he added.

To contact the reporter on this story: Kartik Goyal in New Delhi at kgoyal@bloomberg.net

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Japan Economy Probably Expanded for First Time in Five Quarters

By Jason Clenfield and Tatsuo Ito

Aug. 12 (Bloomberg) -- Japan’s economy grew last quarter for the first time in more than a year as rebounds in exports and consumer spending helped the country climb out of its worst postwar recession, the government is expected to say next week.

Gross domestic product expanded an annualized 3.9 percent in the second quarter, following a record drop of 14.2 percent in the three months ended March 31, according to the median estimate of 22 analysts surveyed before the report due Aug. 17.

More than $2 trillion in emergency spending by governments worldwide has buoyed sales for car and electronic-makers, and companies like Nippon Steel Corp. are filling orders from manufacturers restocking inventories depleted during the recession. Some 40 percent of Japan’s factories still sit idle, forcing firms to cut jobs and investment to eek out profits.

“The positive side of the story is that the worst is over,” said Tetsuro Sugiura, chief economist at Mizuho Securities Research Institute in Tokyo. “But the sustainability of the recovery is questionable. The second quarter is likely to be as good as it gets.”

The world’s second-largest economy is emerging from recession ahead of a national election on Aug. 30 that polls show Prime Minister Taro Aso’s ruling Liberal Democratic Party is expected to lose. The opposition Democratic Party of Japan, which has never held power, would inherit a jobless rate near a postwar high and a public debt twice the size of GDP.

The economy’s recovery hinges largely on the growth of its export markets. China, Japan’s top customer, expanded 7.9 percent last quarter from a year earlier, propelled by government spending and a boom in bank lending that some economists say may lead to a bubble. The U.S. shrank an annualized 1 percent, its best performance since the second quarter of 2008.

Export Driven

Japan’s growth last quarter was driven by exports that jumped 9.2 percent versus the previous three months, the first gain in three quarters, according to economist forecasts. Demand from China has helped to limit losses for companies including Komatsu Ltd. and Nissan Motor Co.

Consumer spending, which makes up about 60 percent of the economy, probably rose 0.9 percent. Aso’s 25 trillion yen ($258 billion) in stimulus has lifted household confidence to its highest level since 2007. The packages, which include incentives to encourage the purchase of eco-friendly products, are the main reason Toyota Motor Corp. is predicting its domestic sales will rise for the first time in five years.

Weak Recovery

Optimism about the nation’s recovery has helped the Nikkei 225 Stock Average advance 50 percent since it touched a 26-year low on March 10. Some 15 percent of firms listed on the first section of the Tokyo Stock Exchange raised first-half earnings estimates since June, according to Tokyo-based Shinko Research.

To be sure, Japan’s expansion in the three months through June 30 doesn’t make up the ground lost during the previous four quarters of contraction that shrank the economy to its 2003 size. Bank of Japan Governor Masaaki Shirakawa said yesterday there’s no guarantee that demand will gain momentum.

“The bounce will recoup only a tenth of what we lost,” said Hiroshi Shiraishi, an economist at BNP Paribas in Tokyo. “If sales recover only to 80 percent of peak levels -- and that’s what we expect -- then quite a few firms will find it difficult to cover fixed costs. They’ll need to do more aggressive restructuring.”

Nippon Steel, the country’s biggest mill, this month restarted one of its idled furnaces to fill orders from makers of cars and electronics rebuilding inventories. The company is still running 25 percent below full capacity.

Record Unemployment

Economists predict low production levels will drive the jobless rate to a record 5.8 percent next year from the current 5.4 percent. Japanese workers are also suffering unprecedented wage cuts that are likely to damp spending once the effect of the government’s stimulus package tapers off.

Business investment, which makes up about 15 percent of the economy, probably fell 5.4 percent in the second quarter, economist predict the GDP report will show.

Cost cuts by corporate Japan are taking a toll on companies such as Canon Inc. The nation’s biggest maker of office equipment last month forecast sales will drop 22 percent this year as clients limit spending on copiers and other business tools. To cope with that, Canon said it will pare its own expenses by 220 billion yen.

“Once the impact of the inventory rebuild and fiscal stimulus fades, you’ll start to see the more negative side of the adjustment,” said BNP’s Shiraishi, referring to the job and investment cuts that companies are making. “It’s already happening underneath, but once the temporary factors supporting growth fade it’ll be more clear.”

To contact the reporter on this story: Jason Clenfield in Tokyo at jclenfield@bloomberg.net; Tatsuo Ito in Tokyo at tito2@bloomberg.net

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Developing Nations to Boost ‘Defensive’ Reserves, Spence Says

By Bob Chen

Aug. 12 (Bloomberg) -- Developing countries are likely to focus on increasing their foreign-currency reserves, an “element of self-insurance,” in the aftermath of the financial crisis, said Nobel Prize-winning economist Michael Spence.

Nations will look to protect themselves from money outflows by building up reserves after emerging markets saw their currencies weaken due to a “rapid exodus of capital” as developed economies withdrew funds amid the slump, Spence said in a commentary posted on the Web site of Pacific Investment Management Co.

“The use of reserves to stabilize the net capital flows is the most important domestically controlled circuit breaker,” Spence, professor emeritus of management in the Graduate School of Business at Stanford University, said in the article. “Countries without reserves had few options and remain highly vulnerable and dependent on a recovery of the international system.”

China and Russia have put forward the idea of replacing the dollar as the world’s reserve currency because of concern the value of their investments in U.S. assets will fall. The U.S. Treasury is selling record amounts of debt to fund its stimulus spending and rescue the economy from recession.

The People’s Bank of China suggested the option of expanding the use of the International Monetary Fund’s special drawing rights, a unit of account based on a basket of currencies. Premier Wen Jiabao said in March that he was concerned U.S. borrowing would erode the value of the $801.5 billion in Treasuries held by his nation’s investors.

‘Defensive Weapon’

The dollar accounted for 64 percent of the world’s reserves at the end of 2008, down from 73 percent in 2001, according to the IMF.

The U.S. dollar is unlikely to be replaced by a “super- sovereign currency,” according to Spence.

The global financial crisis caused South Korea’s reserves to drop to the lowest levels in almost four years in November as the won fell 12 percent that month. Russia spent more than a third of its foreign-exchange holdings to help stem a 35 percent devaluation in the ruble from last August to January.

“The importance of reserves as a defensive weapon will be elevated,” Spence said. “Management of the current and capital account will be carried out in such a way as to include or expand this element of self-insurance.”

To contact the reporter on this story: Bob Chen in Hong Kong at bchen45@bloomberg.net

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Yen Rises as Asian Stock Losses Spur Demand for Safer Assets

By Theresa Barraclough and Ron Harui

Aug. 12 (Bloomberg) -- The yen rose against all 16 major currencies as Asian stocks extended a global slide in equities, spurring demand for the relative safety of Japan’s currency.

The yen also gained for a third day versus the euro after CIT Group Inc. said it was delaying a quarterly report, reviving concern the commercial lender needs more time to raise funds. The dollar fell for a third day against the yen on speculation the Federal Reserve will today affirm its commitment to keeping interest rates low, reducing the appeal of holding U.S. bonds.

“The market is feeling that the recovery in financial institutions may be limited,” said Satoru Ogasawara, a foreign- exchange analyst and economist in Tokyo at Credit Suisse Group AG. “It’s reasonable to expect market participants being risk averse and turning to the yen.”

The yen advanced to 135.16 per euro as of 12:54 p.m. in Tokyo from 135.82 in New York yesterday, after earlier rising to 135.03, the highest level since Aug. 3. Japan’s currency climbed to 95.56 per dollar from 95.99. The dollar traded at $1.4144 per euro from $1.4149.

Most Asian currencies weakened against the dollar and yen as equities in the region dropped, prompting investors to sell emerging-market securities.

“Falling shares would imply risk aversion, sparking buying of the yen,” said Yuji Saito, head of the foreign-exchange group in Tokyo at Societe Generale SA, France’s third-largest bank. “The yen may move in line with stocks.”

Asian Currencies Weaken

South Korea’s won slid 1 percent to 1,251.35 per dollar and Indonesia’s rupiah declined 0.5 percent to 9,965. The MSCI Asia- Pacific Index of regional shares declined 1.2 percent. The euro- yen had a correlation of 0.88 with the MSCI Asia-Pacific Index in the past year, according to data compiled by Bloomberg. A value of 1 would mean the two moved in lockstep.

The yen strengthened to a one-week high against the euro after CIT said in a filing yesterday it expects to file the so- called 10Q statement with the Securities and Exchange Commission by Aug. 17. It repeated a statement from July 23 that bondholders don’t plan to push for a bankruptcy filing.

The New York-based lender, which turned to bondholders for a $3 billion rescue financing after failing to get a second government bailout, said last month it didn’t have the money to repay securities maturing Aug. 17.

The Dollar Index dropped for a second day. Fed policy makers will announce more details about their asset-purchase program at the end of their two-day meeting in Washington.

‘Still Concern’

“The Fed will be positive on the economy but they most likely won’t change their quantitative easing program,” said Sean Callow, a currency strategist at Westpac Banking Corp. in Sydney. “There’s still concern about the outlook and whether they’ve done enough and if lending is picking up. If you had to be short or long, I would be short on the dollar.” A short position is a bet an asset will decline.

The greenback is likely to depreciate to 92 yen by year-end, Westpac’s Callow said. That compares with a forecast of 98 yen in a Bloomberg News survey of economists and analysts with a heavier weighting on more recent forecasts.

The Fed has kept its target rate for overnight loans between banks in a range from zero to 0.25 percent since December. The Federal Open Market Committee will keep rates unchanged today, according to all economists surveyed by Bloomberg. The central bank has bought $252.761 billion of U.S. Treasuries since it announced a six-month plan in March to purchase $300 million of Treasuries to help keep borrowing low.

Yield Spread

“If the Fed provides no hints of when it’s planning to exit its quantitative-easing program, this could weigh on the U.S. dollar,” analysts led by John Kyriakopoulos, head of currency strategy at National Australia Bank Ltd. in Sydney, wrote in a note today.

The difference in yield between 10-year Treasuries and similar-maturity German debt held at 19 basis points today, about half the 41 basis-point spread on Aug. 5. The spread between U.S. and Japanese debt was at 220 basis points today. A basis point is 0.01 percentage point.

The Dollar Index, which the ICE uses to track the dollar against currencies of six major U.S. trading partners including the euro and the yen, to 79.146.

Industrial Production

The euro traded near a seven-week high against the Swiss franc before a report that economists say will show European industrial production rose 0.2 percent in June, after increasing 0.5 percent the previous month.

An index measuring investor sentiment in the euro area rose to minus 17 in August from minus 31.3 in July, the Limburg, Germany-based Sentix research institute said on Aug. 10. The gauge added to signs the economy is recovering from its worst slump since World War II.

“Evidence is mounting that economies around the world, including those in the euro-zone, are coming out of recession,” said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. “That means the euro is still likely to be strong.”

European Central Bank President Jean-Claude Trichet said last week he sees some “clearly less negative” economic signs.

The euro traded at 1.5308 francs from 1.5307 yesterday. It rose to 1.5364 on Aug. 10, the strongest since June 25. The currency was at 85.79 British pence from 85.86 pence yesterday, when it advanced to 86.16 pence, the highest since July 29.

To contact the reporter on this story: Theresa Barraclough in Tokyo at tbarraclough@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net.

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