Bloomberg News

Commodity Currencies Advance as Stocks Gain Boosts Risk Demand

March 23, 2012

Currencies of commodity-exporting countries, led by New Zealand’s dollar, rose against the U.S. dollar as stocks and raw materials prices gained, boosting demand for assets linked to growth.

Norway’s krone rallied as oil prices surged amid concern about supply disruptions. Japan’s currency rose against the dollar after a report showed purchases of new homes in the U.S. unexpectedly fell in February for a second month, signaling the recovery in the housing market may be uneven. The euro climbed against the yen after falling for three days, prompting bets the move lower was overdone.

“We’ve had a big purge of commodity-currency long positions this week, so it’s possible that the backup in oil has been helpful,” said Ray Attrill, a senior currency strategist at BNP Paribas SA in New York. A long is a bet the price of an asset will rise. “Volatility is low, which means the carry trade is really attractive.”

New Zealand’s dollar rose 1.1 percent to 81.82 U.S. cents at 5 p.m. in New York, paring its weekly loss to 0.8 percent. The euro gained 0.5 percent to $1.3270. The yen rose 0.2 percent to 82.35 per dollar, and was up 1.3 this week in its biggest gain since the last five days of 2011.

The carry trade of using the yen to fund purchases of assets denominated in the Mexican peso, Brazilian real, Norwegian krone and Australian dollar more than doubled today after losing 77 percent in the week through yesterday.

Futures traders decreased their bets that the euro will decline against the U.S. dollar, figures from the Washington- based Commodity Futures Trading Commission show.

The difference in the number of wagers by hedge funds and other large speculators on a decline in the shared currency compared with those on a gain -- so-called net shorts -- was 82,954 on March 20, compared with net shorts of 99,336 a week earlier.

‘Proved Futile’

Sweden’s krona and the Norwegian krone were among the top gainers of the major currencies today. The krona added 0.5 percent to 6.7333 per dollar and Norway’s tender strengthened 0.6 percent to 5.7565.

The krone appreciated after oil surged almost $3 a barrel after Reuters reported Iranian oil exports will drop by 300,000 barrels a day because of tighter sanctions.

Crude rose 1.3 percent to $106.76, reaching as high as $108.25. Norway is the world’s seventh largest oil exporter.

The euro rose for the first time in four days against the dollar after dropping to the lowest in almost a week yesterday amid a decrease in a gauge of euro-area industry based on a survey of purchasing managers.

“There was an attempt to break up through the $1.3290-$1.3295 area, but that’s proved futile,” said Jeremy Stretch, head of currency strategy at Canadian Imperial Bank of Commerce in London.

Inflation Target

The yen weakened earlier today after versus the dollar Bank of Japan Governor Masaaki Shirakawa said the central bank and the government share the same view on the economy, increasing concern the central bank may increase stimulus measures to boost the nation’s economy, which would debase the currency.

Finance Minister Jun Azumi said the Bank of Japan (8301) established an inflation target of 1 percent on Feb. 14, replacing earlier wording that the central bank had an “understanding” of where consumer prices should go. It also said it would add 10 trillion yen ($119 billion) yen of stimulus to the economy.

The Japanese currency breached its 21-day moving average against the euro of 108.61, which will lead to further yen appreciation, with support between 105.43 and 106.8, MacNeil Curry, head of foreign-exchange and interest-rates technical strategy at Bank of America Corp. in New York, wrote in a note. Support refers to a level where buy orders may be clustered.

The euro has dropped 0.5 percent against the yen this week.

Home Sales

U.S. new-home sales dropped 1.6 percent to a 313,000 annual pace, the slowest since October, from a 318,000 rate in January that was weaker than previously reported, figures from the Commerce Department showed today in Washington. The median estimate of 78 economists surveyed by Bloomberg News called for 325,000.

IntercontinentalExchange Inc.’s Dollar Index (DXY), used to track the greenback against the currencies of six major U.S. trading partners including the euro, yen and pound, slid 0.5 percent to 79.345. It rose to as high as 80.738 last week as signs of strength in the U.S. economic recovery damped expectations of further Federal Reserve asset purchases, or quantitative easing.

“You saw the U.S. dollar rallying on good data, which you hadn’t seen in a long time because there was so much focus on QE3 being priced out,” said David Grad, a foreign-exchange strategist at Bank of America in New York. “That intense focus on pricing out on QE3 has calmed and that’s why you’ve seen the risk-on, risk-off trade come back.

‘Turning Point’

Fed Bank of St. Louis President James Bullard said monetary policy may be at a ‘‘turning point” as the world’s largest economy strengthens.

With Fed policy currently “on pause, it may be a good time to take stock of whether we may be at a turning point,” Bullard said in a speech in Hong Kong today. The U.S. economy may expand 3 percent this year, he said, adding that “the outlook has improved markedly” over the past eight months.

The Fed has held its target rate at a range of zero to 0.25 percent since December 2008.

“I don’t think the trend for the dollar to gradually rise against the yen has changed,” said Koji Fukaya, chief currency strategist at Credit Suisse Group AG in Tokyo. “The U.S. economic recovery story hasn’t changed.”

To contact the reporter on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net

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


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