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Thursday, August 27, 2009
The dollar may extend its decline against the euro on reduced demand for safety after crude oil
Posted by shuseel at 7:29 PM
The dollar may extend its decline against the euro on reduced demand for safety after crude oil and U.S. stocks rebounded, encouraging traders to sell the U.S. currency to limit losses.The Canadian dollar advanced yesterday against its U.S. counterpart by the most in two weeks as crude oil rose after failing to sustain a drop below $70 a barrel. The Norwegian krone also gained. The dollar depreciated versus most of its major counterparts, declining to the weakest level this year versus the Swiss franc.
“The turnaround in oil and equities set off the moves in commodity currencies,” said Alan Ruskin, head of international currency strategy in North America at RBS Securities Inc. in Stamford, Conn. “Long-dollar positions have been stopped out big-time.” A long is a bet a currency will appreciate.
The euro traded at $1.4346 at 6:09 a.m. in Tokyo, following a 0.6 percent gain yesterday. The franc was at 1.0588 versus the dollar after touching 1.0531, the strongest level since Dec. 30. The dollar bought 93.48 yen after earlier trading at 93.22, the lowest level since July 22. The euro was at 134.17 yen.
The European currency’s gains versus the dollar accelerated yesterday after breaking through $1.4280 at 2:05 p.m. in New York. The 16-nation currency reached the most in almost three weeks at $1.4406 a half-hour later at 2:35 p.m.
The level of $1.4280 was significant because it’s where the euro resumed declines on Aug. 26 after trying to overcome a previous loss, said Andrew Chaveriat, a currency strategist at BNP Paribas SA in New York. Traders typically place so-called stop losses at key levels to protect themselves when a bet moves in the opposite direction.
‘Thin’ Markets
“These markets are very thin, so if someone has a stop for $100 million or $200 million, they could really start pushing the market around a little bit, and that’s what I think happened,” Chaveriat said.
The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, dropped as much as 1 percent to 77.851, the biggest intraday decrease since Aug. 3.
Crude oil for October delivery rose 1.2 percent to $72.25 a barrel on the New York Mercantile Exchange after losing as much as 2.2 percent. The Standard & Poor’s 500 Index added 0.3 percent after earlier dropping as much as 1.2 percent.
Canada’s currency advanced as much as 1.3 percent to C$1.0832 versus its U.S. counterpart yesterday in the biggest intraday advance since Aug. 12. The krone gained 0.7 percent to 6.0237. Oil generates more than half of Canada’s export revenue, and Norway is the world’s fifth-biggest seller of crude oil.
Aussie Dollar
Australia’s dollar rose during New York trading against all of its major counterparts after the Bureau of Statistics said in Sydney that capital spending unexpectedly rose 3.3 percent in the three months through June from the first quarter, when it tumbled a revised 7.3 percent.
The Aussie extended its gain versus the dollar as oil rebounded, appreciating 1.4 percent to 83.97 U.S. cents. Australia relies on exports of commodities such as iron ore and coal for 21 percent of its gross domestic product.
Sterling slid as much as 0.5 percent to 88.20 pence per euro, the weakest level since June 5. The pound gained 0.2 percent to $1.6287 after earlier dropping as much as 0.6 percent to $1.6154, the lowest level since July 13.
U.K. business investment fell 10.4 percent in the second quarter from the previous three months, the Office for National Statistics said yesterday in London. The reading was down 18.4 percent from a year earlier.
Bank of England
The Bank of England has cut its benchmark interest rate to 0.5 percent, allocated 175 billion pounds ($283 billion) to buy bonds and is raising 220 billion pounds of debt through March 2010 to fund stimulus packages and bank bailouts.
Libor for three-month dollar loans fell to 0.36063 percent yesterday, and the three-month yen rate advanced to 0.39313 percent. The benchmark for bank borrowing costs fell below its Japanese counterpart on Aug. 24 for the first time in 16 years, rates from the British Bankers’ Association show.
The dollar fluctuated against the euro earlier yesterday after a Commerce Department report showed the world’s largest economy contracted less than economists forecast as companies reduced inventories, spending started to climb and profits grew.
“Corporate America has been ruthless,” said Marc Chandler, global head of currency strategy at Brown Brothers Harriman & Co. in New York, in an interview on Bloomberg Radio. “They’ve cut industrial production. They’ve cut output. But they’ve cut workers even more, so productivity has gone up. This will help strengthen the dollar as foreign investors bring money to the United States and more Americans keep their money at home.”
Gross domestic product shrank 1 percent in the three months ended in June, matching the initial estimate on July 31. The contraction was less than the 1.5 percent median forecast in a Bloomberg News survey of 75 economists
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