Bloomberg News

Yen Rises as China Lowers Growth Goal, Stoking Refuge Demand; Aussie Falls

March 05, 2012

The yen rallied versus all of its most-traded counterparts after China said it will lower its target for economic growth, boosting demand for the relative safety of Japan’s currency.

Australia’s dollar dropped from almost a nine-month high against yen as China lowered its economic growth target to 7.5 percent and loosened its currency controls. The euro gained against most major currencies as Greece said it expected private creditors to accept its debt-swap terms because it constitutes “the best offer.”

“Global growth concerns are a little higher, given the scaling back of growth expectations in China, as well as around Europe,” said Aroop Chatterjee, a currency strategist at Barclays Capital Inc. in New York. “In that environment, the dollar and the yen typically see safe haven demand.”

The yen strengthened 0.3 percent to 81.56 per dollar at 5 p.m. in New York, after touching 81.87, matching the weakest since May. Japan’s currency rose 0.2 percent to 107.79 per euro. The 17-nation currency rose 0.1 percent to $1.3217.

Xinhua News Agency cited People’s Bank of China Governor Zhou Xiaochuan saying the nation may “appropriately” widen the currency’s trading band today. The reference rate was at 6.3069 per dollar and the yuan is allowed to trade 0.5 percent on either side of that.

Yuan Trade

The Chinese yuan, also called the renminbi or RMB, has appreciated 32 percent since July 2005 when the government abandoned a peg to the U.S. dollar. Implied volatility on one- month options for the yuan versus the dollar rose nine basis points, the most since December, to 1.87 percent in New York trading.

China pared the nation’s economic growth target from an 8 percent goal in place since 2005, a signal that leaders are determined to cut reliance on exports and capital spending in favor of consumption.

Officials will aim for inflation of about 4 percent this year, unchanged from the 2011 goal, according to Premier Wen Jiabao’s state-of-the-nation speech, delivered at the annual meeting of the National People’s Congress in Beijing.

“The fear is that 7.5 percent growth for China would change the outlook for commodities and global growth and would weigh on growth-sensitive currencies like Aussie and Canada,” said Camilla Sutton, head of currency strategy at Bank of Nova Scotia in Toronto. “Traditionally we’ve seen China come in above their growth expectations. Last year it was 8 percent and they came in at 9.5 percent.”

Aussie, Kiwi

The Australian dollar fell 0.9 percent to 87.03 yen after touching 88.01 yen on March 2, the highest level since May. The Aussie slid 0.6 percent to $1.0671. The New Zealand dollar was the biggest loser versus the yen among the most-traded currencies, falling 1.3 percent to 66.94 yen. The so-called kiwi decreased 1 percent to 82.07 U.S. cents.

Canada’s dollar fell 0.5 percent to 99.46 U.S. cents per dollar.

The Reserve Bank of Australia meets tomorrow, before March 8 policy meetings for the Bank of Canada, the European Central Bank and The Bank of England.

The Dollar Index 0.1 percent weaker after the Institute for Supply Management’s nonmanufacturing index for the U.S. was at 57.3 in February, the highest in a year. The gauge, which Intercontinental Exchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, was at 79.356 after rising as much as 0.2 percent.

Fed View

“If the data continue to improve, however gradually, the markets should begin preparing themselves for the good Dr. Fed to wean them from their dependency rather than administer further dosage,” Federal Reserve Bank of Dallas President Richard Fisher said today in the text of a speech in Dallas. Financial markets “have become hooked on the monetary morphine we provided” after the 2008 financial crisis, he said.

The dollar has strengthened 2.8 percent in the past six months, while the euro lost 3.1 percent, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-market currencies. The yen dropped 4.2 percent.

The Standard & Poor’s 500 Index (SPA) fell 0.4 percent and the MSCI World Index of stocks slipped 0.5 percent.

The euro rose against the dollar after European retail sales unexpectedly increased in January after four months of declines as growth in France helped to outweigh a drop in Germany.

Greek Talks

European Union leaders will hold a teleconference on March 9 to review the outcome of the 106 billion-euro ($140 billion) debt swap with Greece’s private creditors. Success depends on how many investors agree to the writedown by March 8 and the Greek government has set a 75 percent participation rate as a threshold for proceeding with the transaction.

“This is the best offer,” Venizelos said in a Bloomberg Television interview with Nicole Itano in Athens today. “This is the best offer because this is the only one, the only existing offer.”

Futures traders pared net bets to the least since December that the euro will weaken against the dollar. Wagers the shared currency will fall against the greenback versus those that will rise equaled 109,674 in the week ended Feb. 28, figures from the Commodity Futures Trading Commission show.

Hedge funds and other large speculators are betting for the first time since May that the yen will fall against the dollar. Net-shorts for the yen were 1,203, compared with net longs of 17,257 a week earlier.

To contact the reporters on this story: Allison Bennett in New York at abennett23@bloomberg.net; Keith Jenkins in London at kjenkins3@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net


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