Bloomberg News

Yen, Dollar Fall as Evidence of China’s Growth Encourages Risk

June 14, 2011

June 14 (Bloomberg) -- The yen and dollar fell against the Australian dollar and South African rand after reports showed China’s retail sales and industrial output increased, spurring demand for higher-yielding assets including stocks.

The Swiss franc dropped versus all of its 16 most-traded counterparts tracked by Bloomberg as the government lowered its forecast for 2012 economic growth and said further currency appreciation poses risks to its outlook. The greenback decreased against the euro for a second consecutive day before government figures forecast to show retail sales fell.

“Equities are looking pretty well bid as risk appetite has perked up a bit,” said Paul Bednarczyk, a currency strategist at 4Cast Ltd. in London. “That’s causing a bit of bargain hunting in the likes of high yielders like the Aussie.”

The yen traded at 115.78 versus the euro at 7:37 a.m. in New York, compared with 115.65 yesterday, when it reached 114.86, the strongest level since May 27. The yen was little changed at 80.21 versus the dollar, compared with 80.24. The dollar slid 0.2 percent to $1.4437 per euro, from $1.4413.

The MSCI Asia Pacific Index of shares climbed 1.1 percent after a drop of as much as 0.2 percent, while the Stoxx Europe 600 Index rose 0.8 percent.

Australia’s dollar increased 0.4 percent to $1.0639 and advanced 0.3 percent to 85.29 yen. South Africa’s rand appreciated 0.3 percent to 6.7695 versus the dollar and gained 0.2 percent to 11.85 yen.

Carry Trades

Under carry trades, investors borrow where interest rates are low to buy higher-yielding assets elsewhere. Benchmark rates are 4.75 percent in Australia and 5.5 percent in South Africa.

China’s retail sales rose 16.9 percent last month, while industrial production increased more than economists forecast, the statistics bureau reported. The 5.5 percent increase in China’s consumer-price index was the fastest in almost three years. Lenders were ordered to set aside more cash as reserves.

Today’s data offset concern the fastest-growing major economy is cooling. New loans in China tumbled in May and money supply grew at the slowest pace since 2008, the central bank reported yesterday.

The Bank of Japan kept the benchmark overnight rate in a range of zero to 0.1 percent and left unchanged its 30 trillion yen ($370 billion) lending facility and 10 trillion yen asset- buying program.

The central bank also announced a 500 billion yen plan to make loans available to companies at 0.1 percent interest for two years, a move aimed at revitalizing an earthquake-hit economy by directing funds to industries.

U.S. Retail Sales

The dollar dropped against the euro before a report forecast to show retail sales dropped 0.5 percent in May in what would be the first decrease in 11 months, according to the median forecast of 81 economists in a Bloomberg News survey before today’s report from the Commerce Department.

The Swiss franc slid 0.5 percent to 1.21287 against the euro as the State Secretariat for Economic Affairs said gross domestic product will rise 1.5 percent next year instead of the 1.9 percent projected in March.

“Economic growth in Switzerland has been solid so far,” the state secretariat said. “However, the currency appreciation, which already represented a burden on Swiss exports the last few months, has jumped even higher over the last few weeks. With the recent added strength to the franc, new risks have emerged.”

Strength of Franc

The franc appreciated yesterday to a record 1.2004 against the euro. The Swiss currency declined today to 83.90 centimes against the dollar.

Gains in the euro may have been limited on concern European Union finance ministers meeting today will struggle to resolve the Greek debt crisis.

Standard & Poor’s lowered its long-term sovereign credit ratings on Greece three levels to CCC yesterday. The outlook on the long-term ratings is negative.

Luxembourg’s Prime Minister Jean-Claude Juncker, who leads the group of euro-area finance ministers, said in an interview on Radio Berlin-Brandenburg on June 11 that any bailout for Greece must include “voluntary” investor participation.

Credit-default swaps on Greece jumped 41 basis points to a record high of 1,604 yesterday, according to CMA. The swaps are benchmarks for protecting bonds against default and traders use them to speculate on credit quality. A drop signals improving perceptions of creditworthiness, while an increase suggests the opposite.

--Editors: Dennis Fitzgerald, Daniel Tilles

To contact the reporters on this story: Garth Theunissen in London gtheunissen@bloomberg.net; Kristine Aquino in Singapore at kaquino1@bloomberg.net

To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net


Burger King's Young Buns
LIMITED-TIME OFFER SUBSCRIBE NOW

(enter your email)
(enter up to 5 email addresses, separated by commas)

Max 250 characters

 
blog comments powered by Disqus