Bloomberg News

Yen Drops as German Confidence Rises; Canada Dollar Gains

April 17, 2012

The yen fell versus most of its 16 most-traded peers as a report showing German investor confidence rose to a two-year high fueled appetite for riskier assets.

Canada’s dollar gained the most in four months against its U.S. counterpart as the central bank said higher interest rates “may become appropriate” because economic growth will be faster than forecast. The euro was buoyed against the yen as increased demand at a Spanish bill auction eased concern Europe’s debt crisis is worsening. South Africa’s rand climbed.

“Confidence being higher than expected is a positive thing; one of the stories of the year is the resilience of Europe,” said Camilla Sutton, head of currency strategy at Bank of Nova Scotia in Toronto. “The shift in the statement from the Bank of Canada was larger than many had expected. The risk now becomes that we’ve come too far, too fast in expectations.”

The yen fell 0.5 percent to 80.85 per dollar at 5 p.m. New York time. It weakened 0.4 percent against the euro to 106.11 after gaining earlier as much as 0.4 percent. The euro slipped 0.1 percent to $1.3127 after dropping yesterday below $1.30 for the first time in two months.

The Standard & Poor’s 500 Index climbed 1.6 percent, and the MSCI World Index jumped 1.6 percent.

The International Monetary Fund raised its economic growth estimates. Its World Economic Outlook forecast the global economy will expand 3.5 percent this year and 4.1 percent in 2013, an increase from its January projections of 3.3 percent growth in 2012 and 4 percent next year.

Loonie Advances

The loonie, as the Canadian currency is nicknamed, strengthened as much as 1.3 percent, the biggest intraday jump since Nov. 30, to 98.65 cents per U.S. dollar before closing at 99.02 cents, up 0.9 percent.

The Bank of Canada said the nation’s economy will reach full output in the first half of next year, sooner than a January forecast for the third quarter of 2013. It predicted that Europe will emerge from recession later this year and the U.S. recovery will be stronger than policy makers expected. The BOC kept its key interest rate unchanged today at 1 percent, as forecast by all 25 economists surveyed by Bloomberg News.

“If Canada were an island in the Pacific, isolated like Australia, then you would say its present monetary policy stance is way too accommodative,” said Greg Anderson, the North American head of Group-of-10 nations currency strategy at Citigroup Inc. in New York. “It’s a question if they’ll move this year or next.”

Gain for Week

The Canadian dollar rose 0.9 percent over the past week against nine developed-nation counterparts monitored by Bloomberg Correlation-Weighted Currency Indexes, sharing the top spot with Australia’s dollar. The yen, the worst performer, fell 1.1 percent and the greenback lost 0.8 percent.

Brazil’s real was the biggest loser against the greenback, declining to a three-month low after the central bank bought dollars to protect exporters from a strong local tender. The currency slid as much as 0.8 percent to 1.8612 per dollar, the weakest level since Jan. 3, before trading at $1.8611.

The implied volatility of three-month options for Group of Seven currencies declined 1.3 percent to 9.66 percent, the lowest level since August 2008. The average over the past decade is 10.6 percent. A decrease makes investments in currencies with higher benchmark rates more attractive because it shows the risk is greater that market moves will erase profits on such trades.

Biggest Winner

South Africa’s rand was the biggest winner against the dollar after Citigroup Inc. said the nation’s government bonds may be included in its global index. That may fuel demand from investors who track the gauge. The requirements for inclusion are size, credit quality and a lack of barriers to entry.

The rand climbed 1.6 percent to 7.8135 per dollar and touched 7.7859, the strongest level since April 5. Mexico’s peso gained 0.8 percent to 13.1070 to the greenback.

The Dollar Index (DXY), which Intercontinental Exchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, was little changed at 79.552. It touched 80.176 yesterday, the strongest level in a month.

The euro gained versus the yen as the Frankfurt-based Bundesbank said the German economy, Europe’s largest, is in “remarkably good shape.” Growth should gather pace as unemployment at a two-decade low fuels domestic demand, it said in a statement today.

The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations increased to 23.4 in April, the highest since June 2010, from 22.3 in March. The gauge is designed to predict economic developments six months in advance. A Bloomberg survey had forecast a drop to 19.

‘Greater Barometer’

“When you get ongoing increases to German investor confidence, that is a greater barometer to the health of Europe than rising Spanish bond yields,” said Andrew Wilkinson, chief economic strategist at Miller Tabak & Co. in New York.

Demand for Spanish 12-month bills offered today was 2.9 times the amount sold, compared with 2.14 times last month, Bank of Spain data showed. The bid-to-cover ratio for 18-month notes was 3.77, compared with 2.93 on March 20. The yield on the nation’s 10-year bond slid 18 basis points, or 0.18 percentage point, to 5.89 percent, after rising yesterday to 6.16 percent.

The euro’s gains were limited before Spain auctions 2-year and 10-year securities tomorrow.

The 17-nation currency is being supported by its February low of $1.2974, according to data compiled Bloomberg. Support refers to an area on a yield graph where buy orders may be clustered. The stronger the support, the more selling is needed to break through it.

To contact the reporter on this story: Allison Bennett in New York at abennett23@bloomberg.net;

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


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