The US dollar today weakened against 10 of the 15 most-active Asia-Pacific currencies. It dropped to a decade-low versus the currency of Australia, where the central bank may lift rates as soon as next month. Futures traders added to bets the Federal Reserve will cut rates in June. „The dollar looks vulnerable,” said Chris Loong, head of currency and asset allocation at State Street Global Advisors in Sydney. „The Fed is very close to cutting. This will weigh against the dollar and underpin high-yielding currencies such as the Australian and New Zealand dollars.” The US currency traded at $1.3375 per euro at 7:53 a.m. in London from $1.3385 yesterday in New York and reached $1.3411, the weakest since March 2005. It fell as low as 80.88 cents per Australian dollar, the weakest since December 1996.
The dollar may decline to $1.37 per euro and 81 cents against Australia’s currency in coming weeks, Loong said. The trade-weighted index of the dollar’s value fell to 80.97 on March 20, the lowest since December 20. The Malaysian ringgit climbed to the highest against the dollar since February 1998 and the Singapore dollar rose to a nine-year high. Traders sold the dollar after the Fed’s statement dropped a reference to „additional firming,” following a decision to hold the rate target for overnight loans between banks at 5.25%. Futures contracts today showed a 40% chance the Fed will lower the key rate a quarter-percentage point at the June 28 meeting, compared with 26% before the policy shift.
The yen may be supported after a Japanese government report showed residential and commercial land prices nationwide rebounded in 2006, halting a 15-year slide. Bank of Japan Governor Toshihiko Fukui on March 20 said policy makers will consider land prices and currencies in addition to economic and price data when setting policy. The central bank doubled the key rate last month to 0.5%, the lowest among major economies. „Rising land prices are supportive of the scenario that Japan’s economy is emerging from deflation and that interest rates will rise over the long term,” said Kenta Inoue, economist and currency analyst at Mitsubishi UFJ Securities in Tokyo. „Some investors may reconsider their perception of the yen as a weak currency.” The yen, at 117.31, may rise to 110 per dollar and 150 against the euro at the end of June, he said.
Japan’s currency lagged behind a rally against the dollar as gains in global stocks gave traders confidence to borrow and sell the currency to fund investments in riskier assets elsewhere, in so-called carry trades. Fukui today told parliament the central bank will keep rates very low for some time and adjustments need to be gradual. European Central Bank President Jean-Claude Trichet yesterday said monetary policy „continues to be on the accommodative side,” and inflation is „subject to upside risks.” The ECB raised the rate to 3.75% this month.
Australia’s dollar has rallied as much as 2.7% since central bank Assistant Governor Malcolm Edey on March 16 said inflation was still too fast, suggesting its key rate may need to rise from a six-year high of 6.25%. The yield premium investors get for holding benchmark US two-year government bonds instead of similar-maturity German bunds is near the least in 24 months. The 58-basis-point gap narrowed from 75 basis points at the start of the month. A basis point is 0.01 percentage point.
The euro also may benefit from speculation ECB policy makers today will reiterate concerns about inflation. It may advance to $1.3480 after breaking a so-called resistance at $1.3368, Masashi Kurabe, a foreign-exchange manager at Bank of Tokyo-Mitsubishi UFJ Ltd., said in Tokyo. A resistance level is where orders to sell the currency may be clustered. Executive board member Gertrude Tumpel-Gugerell speaks in Paris and Juergen Stark holds a speech in Berlin. „They’re likely to remain hawkish, suggesting at least one more rate hike,” said Kurabe at Bank of Tokyo-Mitsubishi UFJ. „The euro is in an uptrend” and may advance to 158 yen today. The ringgit gained 0.3% to 3.4640, while the Singapore dollar advanced 0.4% to S$1.5178, the strongest since September 1997. The Morgan Stanley Capital International Asia-Pacific Index gained 1.8%.
„A global equity markets’ recovery brought by the Fed’s bias change could encourage further accumulation of yen carry trades due to higher risk appetite,” said Toru Umemoto, chief currency analyst at Barclays Capital in Tokyo. Japan’s currency may fall to 120 per dollar in coming weeks, he said. (Bloomberg)
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