Dollar Weakens as Global Growth Optimism Buoys Riskier Assets

The dollar continues its fall this time falling to a record against the Australian dollar and touching its lowest levels in 16 months against the euro and continues its decline against all major currencies.

By Catarina Saraiva
Apr 21, 2011 11:41 AM MT
BLOOMBERG

The dollar slumped to a record against the Australian dollar and touched the lowest level in 16 months versus the euro as signs global growth is being sustained boosted demand for higher-yielding assets.

The greenback depreciated to the weakest in at least 40 years versus the Swiss franc and lows of two years or more against the Swedish krona, the South Korean won and the New Zealand dollar on speculation the Federal Reserve will lag behind other central banks in raising interest rates.

“Fed policy is going to stay the way it is for some time,” said Mary Nicola, a currency strategist at BNP Paribas SA in New York. “You’re looking to capture yield, so you’re going to move out of the dollar, which is lower-yielding, and move into something that’s higher-yielding.”

The dollar depreciated 0.2 percent to $1.4547 versus the euro at 2:37 p.m. in New York, from $1.4523 yesterday, extending this week’s decline to 0.8 percent. It earlier slid to $1.4649, the weakest level since December 2009. The greenback dropped 0.9 percent to 81.83 yen, from 82.56, after touching 81.62, the lowest level since March 29. The yen appreciated 0.7 percent to 119.02 versus the euro, from 119.90.

Sterling rallied to its highest level since December 2009 against the dollar as a report showed retail sales unexpectedly rose 0.2 percent in March as spending on food surged. The median forecast of 20 economists in a Bloomberg News survey was for a 0.5 percent decline.

Gain in Pound

The pound gained 0.6 percent to 88.02 pence against the euro and advanced 0.9 percent to $1.6563 after touching $1.6599, the highest level in 16 months.

Australia’s dollar climbed as much as 0.6 percent to $1.0775, the strongest level since it was freely floated in 1983, before trading at $1.0745, compared with $1.0714.

Producer prices in Australia rose 1.2 percent in the first quarter after a 0.1 percent gain in the prior three months, the Bureau of Statistics said. The median forecast of 14 economists in a Bloomberg News survey was for a 1 percent gain.

Australian Foreign Minister Kevin Rudd ruled out intervention in the Aussie, which has gained 16 percent in the past year against the dollar. Spurred by revenue from shipments of coal and iron ore to China, the currency’s surge has hurt Australian tourism, manufacturing and education.

“We are not in the business of regulating exchange rates,” Rudd told Bloomberg Television at his Brisbane office yesterday. “We don’t intend to drift back to anything which seeks to manipulate our exchange rate.”

ECB Rate Outlook

The euro rose earlier against the dollar on speculation the European Central Bank will boost its main refinancing rate further after increasing it on April 7 for the first time since the financial crisis.

Spain’s 2.49 billion euros ($3.63 billion) offering yesterday of 10-year bonds drew higher demand, damping speculation the nation will require a bailout.

The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback versus the currencies of six major U.S. trading partners, dropped as much as 0.9 percent to 73.735, the lowest level since August 2008.

The Fed isn’t expected to increase its target lending rate until the first quarter of 2012, according to the median forecast in a Bloomberg News survey of economists.

“The dollar is paralyzed, absolutely paralyzed by the low-rate structure here while the rest of the world is hiking rates,” Richard Franulovich, a senior currency strategist at Westpac Banking Corp. in New York, said in a radio interview on “Bloomberg Surveillance” with Tom Keene.

Multiyear Lows

The dollar fell to multiyear lows against the Swiss franc, Sweden’s krona, the South Korean won, New Zealand’s kiwi and Canada’s dollar.

The U.S. currency sank to a record low against the franc, touching 87.81 centimes, the weakest level since at least 1971, when Bloomberg records began.

Sweden’s krona appreciated as much as 0.9 percent to 6.0736 versus the dollar, the strongest level since August 2008, a day after the Riksbank raised its benchmark lending rate by a quarter-percentage point to 1.75 percent.

The won reached 1,078.30 per dollar, the strongest level since September 2008. The kiwi, as New Zealand’s currency is known, reached 80.38 U.S. cents, the strongest since March 2008, and the loonie touched 94.55 cents per U.S. dollar, the highest level November 2007.

The euro pared its gain on reduced risk demand as reports showed the U.S. economic recovery may be losing momentum. Initial claims for jobless benefits fell less than economists forecast, the Labor Department reported. Manufacturing in the Philadelphia region slowed more than forecast as measures of orders and sales fell, the Philadelphia Fed reported.

“The slight disappointment on the U.S. data side led to a little bit less optimism and a little bit of a decline in risk appetite,” said Nick Bennenbroek, head of currency strategy at Wells Fargo & Co. in New York.

To contact the reporter on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net

To contact the editor responsible for this story: Robert Burgess at bburgess@bloomberg.net

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