Bloomberg News

Yen Rises on Slowing Global Growth Concern; Aussie Dollar

March 29, 2012

The yen rose against all of its 16 major counterparts as concern increased that Europe’s sovereign- debt crisis threatens global economic growth and stocks dropped amid safety demand.

Japan’s currency reached an almost three-week high versus the dollar on speculation the country’s companies will repatriate overseas earnings before the end of the fiscal year on March 31. The 17-nation euro fell from almost a one-month high versus the dollar after economic confidence in the region unexpectedly declined in March. Australia’s dollar weakened as Chinese company earnings trailed estimates, spurring concern of slower growth in Australia’s biggest trading partner. The pound rose the most in two weeks against the euro.

“There are some safe-haven flows that are going back into the yen and it’s exacerbated by year-end financing, which sees repatriation into Japan,” said Mark McCormick, a currency strategist at Brown Brothers Harriman & Co. in New York. “There’s growing concerns that the global economy is slowing.”

The yen strengthened 0.5 percent to 82.46 per dollar at 59 p.m. New York time, touching 81.91, the strongest since March 9. The yen trimmed its decline this quarter to 7.2 percent. Japan’s currency appreciated 0.7 percent to 109.68 per euro. The euro fell 0.1 to $1.3302. It touched $1.3386 on March 27, the strongest level since Feb. 29.

Australia’s dollar fell as much as 0.8 percent to a two- month low against its U.S. counterpart.

The pound climbed 0.6 percent to 83.36 pence per euro, the biggest gain since March 13.

Downtrend Channel

The shared European currency could fall to $1.30 as it drops into its downtrend channel, drawn from a high of $1.4247 reached at the end of October to a high of $1.3487 touched in February, said Sebastien Galy, a senior foreign-exchange strategist at Societe Generale SA in New York.

The currency failed to rise above the trend channel this month and is falling toward $1.3250 and its next major retracement level of $1.3180, Galy said.

The euro has risen 0.4 percent this year as the region’s debt crisis abated, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-market currencies. The dollar has weakened 2.4 percent, while the yen has fallen 9.7 percent, set for its biggest quarterly drop since the three months ending December 2001, the indexes show. The New Zealand dollar has strengthened the most in 2012, with a 3.2 percent gain, the indexes show.

Emerging Markets

Iceland’s krona and the Argentine peso are the biggest losers against the dollar this year among 25 emerging-market currencies, according to data compiled by Bloomberg. The krona has lost 3.3 percent and the peso has fallen 1.7 percent. The Polish zloty and the Hungarian forint, among the 21 emerging- market currencies that gained against the dollar, have strengthened the most, adding 10.3 and 9.6 percent, respectively.

Implied volatility of three-month options of Group of Seven currencies was at 10.1 percent, compared with a low of 9.85 percent yesterday, according to the JPMorgan G7 Volatility Index (JPMVXYG7). An increase makes investments in currencies with higher benchmark lending rates less attractive as the risk in such trades is that market moves will erase profits.

Stocks slumped as Chinese company earnings missed estimates, driving the MSCI World Index of shares down 0.3 percent after a 0.8 percent slide yesterday. Hennes & Mauritz AB, Europe’s second-largest clothing retailer, and PICC Property & Casualty Co., China’s biggest non-life insurer, reported lower-than-estimated results.

European Economics

An index of executive and consumer sentiment in the 17- nation euro area fell to 94.4 from a revised 94.5 in February, the European Commission said today. Economists had forecast a gain to 94.5 from a previously reported 94.4, the median of 29 estimates in a Bloomberg News survey showed.

A draft statement dated March 23 and obtained by Bloomberg News showed that European governments are preparing for a one- year increase in the ceiling on rescue aid for indebted nations to 940 billion euros ($1.2 trillion) to keep the crisis at bay. German Chancellor Angela Merkel said on March 26 her country may back plans for the European Financial Stability Facility and the European Stability Mechanism to run in parallel.

“We do believe the approval for the rescue package will go ahead tomorrow, and this may create more support for the euro in the interim,” Emma Lawson, a Sydney-based currency strategist at National Australia Bank Ltd. (NAB), wrote in a research note today.

Greek Update

There may be “down the road another restructuring of the outstanding debt” in Greece, Moritz Kraemer, head of sovereign ratings at Standard & Poor’s, said at an event at the London School of Economics yesterday. Greece pushed through the biggest sovereign-debt restructuring in history earlier this month, paving the way for an international bailout.

Speculation Japanese companies are repatriating overseas earnings before fiscal year-end also boosted the yen.

That demand “is capping gains in dollar-yen,” said Kazuo Shirai, a trader at Union Bank NA in Los Angeles. “I think the yen will grind weaker” if it stays around the 82 per dollar level, he said.

Australia’s dollar fell against all but two of its major counterparts, touching $1.0305, the weakest level since Jan. 17.

“The reality is that we will need to cut and cancel existing programs if we are to meet” the government’s surplus targets, Treasurer Wayne Swan said in a speech today.

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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