Bloomberg News

Dollar Remains Lower Before U.S. Factory Orders

April 03, 2012

The dollar approached a one-month low against the euro before a U.S. report that economists said will show factory orders rebounded in February, reducing demand for the relative safety of the world’s reserve currency.

The Dollar Index dropped for a fourth day before the Federal Open Market Committee releases minutes of its March meeting, where policy makers raised their assessment of the economy. The euro rose against most of its major peers after a German parliamentary leader said there’s no need to discuss a bailout for Spain. Australia’s dollar fell after the central bank signaled it may resume cutting interest rates.

“The U.S. economic news, because it has been better, is promoting some risk appetite,” and undermining the dollar, said Michael Derks, chief strategist at FXPro Financial Services Ltd. in London. “For now the market is minded to focus on the more positive developments. The euro is less vulnerable against the dollar than it was a month ago and there’s also a suspicion that the FOMC minutes might show a bias toward further easing.”

The dollar fell 0.2 percent to $1.3342 per euro at 6:33 a.m. New York time after declining to $1.3386 on March 27, the weakest since Feb. 29. The U.S. currency was little changed at 82.04 yen. It earlier dropped to 81.56, the lowest since March 9. The euro gained 0.1 percent to 109.47 yen.

The Dollar Index (DXY), which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six U.S. major trading partners, fell 0.1 percent to 78.794.

Factory Orders

Orders (TMNOCHNG) at U.S. factories rose 1.5 percent in February after a 1 percent drop the previous month, according to the median estimate of economists in a Bloomberg News survey before the Commerce Department releases the data today.

Improving U.S. data are “certainly helping global growth in terms of stability in economic outlook,” said Greg Gibbs, a currency strategist at Royal Bank of Scotland Group Plc in Sydney. “The U.S. dollar tends to generally underperform in that environment.”

The FOMC will release today minutes of its March 13 meeting when policy makers raised their economic assessment while repeating that “exceptionally low” interest rates may be needed through late 2014. The central bank bought $2.3 trillion of debt in two rounds of quantitative easing, or QE, between December 2008 and June 2011.

‘Lower’ Dollar

“With signs of an improving economy, the market is still trying to assess how committed they are, as well as the possibility of QE3,” Emma Lawson, a Sydney-based currency strategist at National Australia Bank Ltd. (NAB), wrote in a research note today. “Less acknowledgement of the recovery is likely to see the U.S. dollar lower and equity markets higher.”

The euro may struggle to rise above $1.3487, its Feb. 24 high, according to data compiled by Bloomberg.

The share currency was supported after an envoy of German Chancellor Angela Merkel’s party said Spain’s government is determined to tackle its debt and there’s no need to discuss bailing out the euro area’s fourth-largest economy.

“From what I see, there is no necessity at the moment for there to be any talk of Spain having to apply for aid from a rescue fund,” Volker Kauder, parliamentary leader of the Christian Democratic bloc, said yesterday after meeting Prime Minister Mariano Rajoy and other Spanish officials in Madrid.

The euro has advanced 0.2 percent since the start of the year, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies. The yen has declined 9.7 percent, and the dollar has fallen 3.1 percent.

Aussie Decline

The Australian dollar weakened versus all of its 16 major counterparts after the Reserve Bank signaled it may resume lowering borrowing costs as soon as next month if weaker-than- expected growth slows inflation.

“Overall, the tone was quite dovish,” Lee Sue Ann, a Treasury economist at United Overseas Bank Ltd. in Singapore, said of statement. “Interest-rate expectations are going to fall, and this will continue to weigh on the Aussie dollar.”

Traders expect the RBA will cut its benchmark rate by 79 basis points over the coming 12 months, according to a Credit Suisse Group AG index based on overnight indexed swap rates.

The so-called Aussie declined 0.5 percent to $1.0372, and weakened 0.5 percent to 85.10 yen.

Implied volatility for Group of Seven currencies declined to 9.9 percent, according to the JPMorgan G7 Volatility Index. The gauge has fallen from 12.3 at the start of the year. Lower volatility makes investments in currencies with higher benchmark lending rates more attractive because the risk in such trades is that market moves will erase profits.

To contact the reporters on this story: Emma Charlton in London at echarlton1@bloomberg.net;

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


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