Bloomberg News

Euro Advances for Second Day as Spanish Bailout Wagers Persist

October 02, 2012

The euro gained versus the dollar for a second day as speculation persisted that Spain will eventually seek a bailout even after Prime Minister Mariano Rajoy said a request for rescue funds is not imminent.

The yen fell versus most major currencies on bets Japan may act to weaken the currency, while the euro rose against most peers as Spanish bonds advanced before the European Central Bank meets Oct. 4. South Africa’s rand gained versus the greenback for the first time in three days. The Australian dollar slid to a three-week low against its U.S. peer after the Reserve Bank of Australia unexpectedly cut its benchmark interest rate.

“There seems to be a lot of confusion about the actual future stability of Spain,” Ravi Bharadwaj, a market analyst in Washington at Western Union Business Solutions, a unit of Western Union Co., said in a telephone interview. “Rajoy’s comments are belying this idea in the Spanish government that they’ll be able to weather the storm” without help, he said.

The euro appreciated 0.3 percent to $1.2920 at 5 p.m. New York time after climbing as much as 0.6 percent, its biggest intraday increase since Sept. 21. The 17-nation currency rose 0.5 percent to 100.97 yen. The Japanese currency declined 0.2 percent to 78.16 per dollar.

Implied volatility, which signals the expected pace of currency swings, was almost at a five-year low. It was 7.83 after touching 7.73 on Sept. 28, the least since October 2007, a JPMorgan Chase & Co. index for the currencies of Group of Seven nations showed. 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 profit.

Rand Rallies

South Africa’s rand strengthened as foreign buying of the country’s government bonds increased after they were included in a key index. The rand advanced as much as 0.7 percent before trading 0.2 percent stronger at 8.3637 per dollar. Yields on 6.75 percent notes due 2021 fell eight basis points, or 0.08 percentage point, to 6.58 percent.

New Zealand’s dollar gained as much as 0.7 percent, approaching a six-month high, after a report showed commodity export prices advanced last month, buoying the currency. ANZ National Bank Ltd.’s price index advanced 3.5 percent to 263 in September, its highest level since April.

The currency, nicknamed the kiwi, reached 83.37 U.S. cents before trading little changed at 82.75 cents. It touched 83.57 cents on Sept. 28, the highest level since March 2. The kiwi rose 0.2 percent today to 64.68 yen.

Danish Krone

Denmark’s krone rose against most major peers after the country’s central bank purchased the currency to support its peg to the euro for the first time in 1 1/2 years. Weaker demand for haven assets and negative policy rates had left their mark on the exchange rate. Danish policy makers had sought until last month to weaken the krone in response to a capital influx.

The currency was up 0.3 percent to 5.7709 per dollar and rose as much as 0.6 percent, its biggest gain since Sept. 14.

The Norwegian krone gained versus all of its 16 most-traded counterparts, climbing 0.5 percent to 5.7066 per dollar. It advanced 0.2 percent to 7.3727 per euro.

Spain’s Rajoy said today he had no plans to request a bailout soon, fending off mounting speculation that a bid was near. Asked at a press conference in Madrid if a bailout request was imminent, Rajoy said: “No.”

Weighing Terms

Rajoy is weighing the terms of a Sept. 6 proposal by the ECB to buy bonds of cash-strapped nations including Spain if they make for a formal aid request from the euro region’s government-run rescue funds. The program was designed to help contain the bloc’s debt crisis.

Uncertainty “will persist until an official Spanish request mid-month,” Adam Myers, a senior foreign-exchange strategist in London at Credit Agricole SA (ACA), wrote today in a note to clients.

Gains in the euro were limited before data tomorrow that a Bloomberg survey forecast will show European retail sales fell 0.1 percent in August from July, when they slipped 0.2 percent. Figures yesterday showed unemployment in the euro area climbed to a record 11.4 percent in August.

The ECB will keep its main refinancing rate unchanged at a record low 0.75 percent at this week’s meeting and will cut it by year-end, a Bloomberg survey of economists forecast.

‘Rocky Road’

“The euro is not a currency you want to own with too much weight in your portfolio,” Greg Anderson, the North American head of G-10 currency strategy at Citigroup Inc. in New York, said in an interview on Bloomberg Television’s “Lunch Money” with Sara Eisen. “We anticipate a rocky road and potential for a Greek exit over the next three to six months. Markets are getting back into euro shorts that they will carry through the end of the year.” Shorts are bets a currency will weaken.

The currency bloc’s sovereign-debt crisis began three years ago in Greece.

The euro lost 2.7 percent over the past six months, the biggest drop after the Swiss franc among 10 developed-nation currencies tracked by Bloomberg Correlation Weighted Indexes. The dollar fell 0.1 percent and the yen jumped 6.6 percent. The Aussie depreciated 0.8 percent, the indexes showed.

RBA Governor Glenn Stevens and his board cut Australia’s overnight cash-rate target by a quarter-percentage point to 3.25 percent, the central bank said in a statement in Sydney today. It’s the lowest level since 2009.

Aussie Falls

The Aussie dropped 0.9 percent to $1.0267 and touched $1.0252, the lowest level since Sept. 6. It was the worst performer among major currencies.

The yen slid after the nation’s new finance minister, Koriki Jojima, said the government will “take bold actions against the currency’s excessive moves, if necessary.” His comments echoed those used by predecessor Jun Azumi.

“Japan will eventually move to something like an intervention in the currency markets,” Andrew Busch, a global currency strategist at Bank of Montreal (BMO) in Chicago, said in a phone interview. “Their focus is on their exporters, and they need to stabilize that currency. They need to get dollar-yen above 80, throw a line in the sand and say they’re going to intervene.”

Nations intervene by selling or buying currencies to influence prices. Japan hasn’t done so since November, according to the finance ministry.

To contact the reporter on this story: Joseph Ciolli in New York at jciolli@bloomberg.net

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


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