Monday, March 23, 2009

“The dollar is a sell near-term versus those currencies where quantitative easing is off the table,”

TO BE NOTED: From Bloomberg:

"Yen Weakens on Bets U.S. Bank Plan to Spur Higher-Yield Demand

By Oliver Biggadike and Gavin Finch

March 23 (Bloomberg) -- The yen fell against all of its 16 most actively traded counterparts on speculation additional U.S. government steps to help banks dispose of toxic assets will reduce demand for the Japanese currency’s safety.

The New Zealand and Australian dollars extended gains versus the dollar to 10 days as global stocks rallied on U.S. Treasury Secretary Timothy Geithner’s plan to remove toxic assets from the books of banks, increasing demand for higher yields. The dollar rose against the currencies of six major U.S. trading partners on bets last week’s biggest drop since 1985 was too big to sustain.

“It looks like it’s a story that speaks more to a recovery in risk appetite,” said Richard Franulovich, a senior currency strategist at Westpac Banking Corp. in New York. “It plays more to the strengths of the Aussie and the kiwi.”

The yen depreciated 1.1 percent to 131.70 per euro at 11:08 a.m. in New York, from 130.29 on March 20. It touched 132.26, the weakest level since Oct. 21. The yen declined 1.2 percent to 97.11 per dollar from 95.94. The dollar gained 0.1 percent to $1.3562 per euro from $1.3582. The U.S. currency reached $1.3738 on March 19, the weakest level since Jan. 9.

South Korea’s won climbed 1.4 percent to 1,392.22 against the dollar and 2.7 percent to 14.3329 versus the yen as Goldman Sachs Group Inc. raised its outlook for the nation’s current- account surplus in the first half of 2009 to $11 billion from $7 billion and said it expected the won to appreciate to 1,300 versus the dollar within 12 months.

Yen’s Losses

The New Zealand and Australian dollars posted the biggest gains versus the yen among the major currencies today, with the kiwi increasing 2.4 percent to 54.92 yen and the Aussie gaining 2.2 percent to 67.44 yen as the MSCI World Index climbed 1.3 percent and the Standard & Poor’s 500 Index rose 3 percent.

Geithner’s plan is aimed at financing as much as $1 trillion in purchases of devalued real-estate assets, using $75 billion to $100 billion of the Treasury’s remaining bank-rescue funds. The Public-Private Investment Program will also rely on Federal Reserve and Federal Deposit Insurance Corp. debt guarantees, the Treasury said in a statement in Washington.

“The markets are looking at Geithner’s plan favorably,” said Geoffrey Yu, a London-based strategist at UBS AG, the world’s second-largest foreign-exchange trader. “We could well see the dollar push lower as risk appetite improves a bit.”

Australia’s dollar rose 1.8 percent to 69.93 U.S. cents, and New Zealand’s dollar advanced 1.6 percent to 56.78 U.S. cents. The Federal Reserve’s target range of zero to 0.25 percent for overnight lending between banks compares 0.1 percent in Japan, 3.25 percent in Australia and 3 percent in New Zealand.

Fed’s Decision

The dollar fell 4.3 percent versus the euro last week, its biggest decline since mid-December, after the Fed unexpectedly announced on March 18 it would buy as much as $300 billion of Treasuries and increase purchases of agency mortgage-backed securities to lower consumer borrowing costs.

The 14-day relative strength index on the euro versus the dollar, a gauge used by analysts to project trends, was at 74.4 on March 19, the highest level in three months. A level above 70 tends to signal a currency’s gain is too fast to be sustained. The dollar’s gain today lowered the index to 68.2.

The Dollar Index, which the ICE uses to track the greenback against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona, was little changed today after dropping 4.1 percent last week, the biggest decrease since September 1985, when the U.S., U.K., France, Japan and West Germany agreed at New York’s Plaza Hotel to coordinate the devaluation of the dollar against the yen and deutsche mark. The gauge fell 4.7 percent in March, paring its gain this year to 3.2 percent.

Japanese Sentiment

The yen also weakened against its other major counterparts after a government survey showed confidence among Japan’s manufacturers fell the most on record this quarter, making the currency less attractive to investors.

“Japan’s fundamentals including its economy are still deteriorating, casting doubt over the appeal of its currency,” said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo.

The Cabinet Office and Finance Ministry said today sentiment among large manufacturers was minus 66 points in the first quarter compared with minus 44.5 points three months earlier. A negative number means pessimists outnumber optimists. The government began compiling the report in 2004.

Demand for the euro also increased after European Central Bank President Jean-Claude Trichet said in an interview with the Wall Street Journal that zero interest rates have “drawbacks” and would not be “appropriate.”

‘Most Reluctant’

“The ECB is most reluctant” to lower its 1.5 percent target lending rate, said Yuji Saito, Tokyo-based head of the foreign-exchange group at Societe Generale SA, France’s third- largest bank.

JPMorgan Chase & Co., Morgan Stanley and Citigroup Inc. are advising investors to buy euros as traders snap up currencies of nations where central bankers are resisting calls to purchase debt securities as a way of lowering interest rates and bolstering financial systems. Such currencies are becoming scarce after the Fed joined the Bank of England, Bank of Japan and Swiss National Bank in quantitative easing.

“The dollar is a sell near-term versus those currencies where quantitative easing is off the table,” said John Normand, head of currency strategy at JPMorgan in London. “The top on euro-dollar will come when the ECB looks likely to join the quantitative-easing crowd. For now, it’s content to stay on the sidelines.”

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