Search

Yen Advances to Three-Week High as Stocks Slump; Kiwi Declines

By David Goodman and Candice Zachariahs
May 07, 2014 7:02 AM EDT
Reserve Bank Of New Zealand Governor Graeme Wheeler.
Photographer: Mark Coote/Bloomberg
Reserve Bank Of New Zealand Governor Graeme Wheeler.

The yen rose to a three-week high against the dollar as Asia’s regional stock index dropped the most since March, boosting demand for the safest assets.

The New Zealand dollar slid at least 0.5 percent versus all 16 of its major peers after Reserve Bank Governor Graeme Wheeler said the central bank may consider selling the currency if it fails to respond to worsening fundamentals. A U.S. dollar gauge was little changed before Federal Reserve Chair Janet Yellen testifies to U.S. lawmakers today and tomorrow. The South Korean won rose to the highest level since 2008.

“The capitulation in the equity market is the key driver of dollar-yen,” said Jeremy Stretch, head of foreign-exchange strategy at Canadian Imperial Bank of Commerce in London. “It’s a risk-off session. The yen is leading the pack.”

The yen climbed 0.1 percent to 101.54 per dollar at 7 a.m in New York and earlier reached 101.43, the strongest since April 14. It climbed 0.1 percent to 141.44 per euro. The 18-nation shared currency was little changed at $1.3929 after advancing $1.3951 yesterday, the highest since March 13.

The MSCI Asia Pacific Index slipped 1.4 percent, the biggest drop since March 20, as data today showed China’s services sector expanded at a slower pace last month and the U.S. urged Ukraine to proceed with its May 25 presidential election, rejecting Russia’s calls to postpone the vote.

European Stocks

The Stoxx Europe 600 Index fell 0.3 percent for a fourth day of declines, extending its losing streak to the longest since December, after a separate report showed German factory orders unexpectedly dropped in March.

The kiwi dropped from near its highest in almost three years against the greenback reached yesterday as whole-milk powder prices declined for a sixth straight auction.

“If the currency remains high in the face of worsening fundamentals, such as a continued weakening in export prices, it would become more opportune for the Reserve Bank to intervene in the currency market to sell New Zealand dollars,” Wheeler said in notes for a speech today.

The kiwi fell 0.8 percent to 86.69 U.S. cents after yesterday rising to 87.80, the highest level since August 2011.

“Today’s comments, and the dairy auction results, should keep the New Zealand dollar under some pressure,” said James McIntyre, a senior economist in Sydney at Commonwealth Bank of Australia. “The likelihood of the RBNZ intervening is quite low, and as we have seen in the past it has had limited lasting impact on the New Zealand dollar.”

Dollar Gauge

The Bloomberg Dollar Spot Index, which monitors the greenback against 10 major counterparts, was little changed at 1,002.84 after yesterday dropping to 1,002.02, its lowest level since Oct. 29.

The index has declined 1.3 percent since March 31 and 10-year Treasury yields dropped 15 basis points, or 0.15 percentage point. The yield was 2.58 percent today compared with the median year-end forecast for an increase to 3.32 percent.

Yellen’s testimony may “err on the dovish side,” Michael Turner, a debt and currency strategist at Royal Bank of Canada in Sydney, wrote in a note to clients today.

South Korea’s won strengthened 0.2 percent to 1,022.75 today, after touching 1,022.60, the strongest since August 2008. Authorities will take action to stabilize the market if volatility is too high, Bank of Korea Director General Ryoo Sang Dai said by phone today.

Policy Meeting

European Central Bank policy makers meeting tomorrow will keep the benchmark interest rate at a record low of 0.25 percent, according to the median estimate of economists in a Bloomberg survey.

The shared currency has gained 6 percent in the past 12 months, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies. The yen dropped 3.9 percent and the dollar fell 1.1 percent.

ECB President Mario Draghi stepped up his war of words against the euro’s gains in recent months, culminating in an April 24 pledge to start asset purchases if a stronger currency keeps inflation depressed.

“The main problem for the ECB is if they don’t do anything,” Beat Siegenthaler, a currency strategist at UBS AG in Zurich, said yesterday by phone. “Then I would think we’d break the highs of the year, which will mean more pressure for them later on. If we do go above $1.40 it would create a lot of headlines that they could do without.”

To contact the reporters on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net; David Goodman in London at dgoodman28@bloomberg.net

To contact the editors responsible for this story: Paul Dobson at pdobson2@bloomberg.net Mark McCord

Comments
More related content »