Bloomberg News

Dollar Drops for Third Week on Fed Stimulus Outlook; Kiwi Climbs

July 27, 2013

The dollar fell for a third week against most major peers as U.S. economic data failed to convince investors the Federal Reserve will decide next week to reduce stimulus by slowing its bond-buying program.

The yen rose versus all 16 of its most-traded counterparts amid higher demand for refuge assets. New Zealand’s dollar had the biggest daily jump in more than a year versus the greenback after central-bank Governor Graeme Wheeler signaled he may raise interest rates next year. The Federal Open Market Committee starts a two-day policy meeting July 30. Data showed sales of U.S. new homes rose last month, while existing-home sales fell.

“We saw mixed news on the U.S. economy, and that further clouded the outlook for Fed taper plans,” Joe Manimbo, a market analyst at Western Union Business Solutions, a unit of Western Union Co., said yesterday by telephone from Washington. “The market still hasn’t quite received that knock-out punch for a September taper.”

The dollar dropped 2.4 percent to 98.21 yen this week in New York, the most since the five days ended June 14. The U.S. currency declined 1 percent to $1.3279 per euro, and touched $1.3297, its weakest level since June 20. Europe’s shared currency weakened 1.4 percent to 130.42 yen.

The Bloomberg Dollar Index fell for a third week, decreasing 1 percent to 1,022.85. The gauge monitors the greenback against 10 other major currencies.

A measure of price fluctuations among Group-of-Seven currencies fell for a fifth week, the longest stretch in a year. JPMorgan Chase & Co.’s G-7 Volatility Index declined to 9.45 percent after touching 9.11 percent on July 24, the lowest intraday level since May 9.

Winners, Losers

New Zealand’s dollar was the biggest winner this week among the greenback’s major counterparts, after the yen, with a 2 percent gain. The Mexican peso was the biggest loser, sliding 1.1 percent, while Brazil’s real dropped 0.2 percent in the second-worst performance.

The kiwi, as the South Pacific currency is nicknamed, climbed after the Reserve Bank of New Zealand said the pace of future interest-rate increases will depend on the impact on prices of the nation’s growing housing, while reiterating it will keep borrowing costs at a record-low 2.5 percent in 2013.

The “Reserve Bank has told us that they’re going to tighten explicitly, no ifs or buts,” said Imre Speizer, a markets strategist at Westpac Banking Corp. in Auckland. “The pressure from the markets would be to the upside for the kiwi.”

The kiwi rose to 80.79 U.S. cents. It gained 1.9 percent on June 25, the most in a day on a closing basis since June 2012.

Seeking Safety

The yen climbed as investors sought safety as Japanese stocks posted the biggest weekly decline since June 7 amid disappointing corporate earnings. The Topix (TPX) Index of equities slid 3.7 percent.

The yen has been the biggest loser this year among the 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes, dropping 9.4 percent as officials pushed to stem deflation and spur growth. The euro has been the best performer, rallying 4.9 percent, and the U.S. currency has advanced 4.1 percent.

The dollar dropped this week on speculation the Fed won’t be quick to taper its bond buying under the quantitative-easing stimulus strategy, which tends to devalue the currency. The central bank purchases $85 billion of Treasuries and mortgage debt each month. It has held the benchmark interest-rate target at zero to 0.25 percent since 2008 to support the economy.

‘Under Pressure’

None of the 54 economists surveyed by Bloomberg from July 18-22 predicted policy makers will begin reducing the purchases at next week’s meeting. The central bank will start trimming in September, the survey forecast, with a $20 billion reduction.

“The dollar remains under pressure,” BNP Paribas SA currency strategists Steven Saywell and Michael Sneyd in London wrote yesterday in a note to clients. “While the arguments for a firmer dollar in the third quarter remain sound, risk-reward is not attractive for new dollar longs heading into next week.” A long position is a bet an asset will rise.

The greenback rose versus the yen on July 24 after the Commerce Department reported U.S. sales of new homes increased in June to the highest level in five years, bolstering the argument for slowing stimulus. Sales climbed 8.3 percent to an annualized pace of 497,000, the data showed.

A report two days earlier showed sales of existing homes unexpectedly fell, dropping 1.2 percent to a 5.08 million pace.

Factory Index

The dollar fell July 23 after the Richmond Fed’s manufacturing index unexpectedly slumped to negative 11 in July, from 8 in June. Readings greater than zero signal expansion in the mid-Atlantic region.

The U.S. jobless rate dropped to 7.5 percent in July, from 7.6 percent in June, according to economists in a Bloomberg survey before a Labor Department report due Aug. 2. The Fed has said it will consider raising its benchmark interest rate if unemployment rate drops to 6.5 percent.

Bets that the greenback will gain versus eight peers including the euro, yen and pound -- dollar net longs -- fell to $28 billion as of July 23, a $1.3 billion decline to the lowest since July 9, according to Commodity Futures Trading Commission data compiled by Societe Generale SA.

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

To contact the editor responsible for this story: Robert Burgess at rburgess@bloomberg.net


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