Bloomberg News

Dollar Gains as Haven Demand Increases Amid Political Deadlock

October 08, 2013

The dollar rose against 13 of its 16 most-traded peers as a U.S. political stalemate persisted and President Barack Obama warned the nation faces a “very deep recession” if Congress doesn’t raise the debt limit, fueling haven demand.

The yen fell from an eight-week high versus the dollar after Japan’s current-account surplus unexpectedly shrank to a record for an August. The Japanese currency failed to maintain a breach of its 200-day moving average versus the dollar, signaling further weakness. The franc pared a loss versus the euro as the Swiss National Bank said it hasn’t intervened in currency markets for more than a year. The rand rose.

“It feels like a risk-off situation, which is benefiting the dollar,” Charles St-Arnaud, a foreign-exchange strategist at Nomura Holdings Inc. in New York, said in a phone interview. “Most market participants are not expecting a quick resolution to the fiscal issues.”

The dollar increased 0.2 percent to 96.88 yen at 5 p.m. New York time after gaining as much as 0.6 percent earlier. The greenback was little changed at $1.3573 per euro after rising 0.2 percent earlier. The 17-nation currency appreciated 0.1 percent to 131.49 yen.

The JPMorgan Global FX Volatility Index fell to as low as 8.68 percent, the least since May 9, before trading at 8.73. The 2013 average is 9.37 percent.

Zloty, Rand

Poland’s zloty increased versus most of its major counterparts as the International Monetary Fund upgraded the forecast for the country’s 2014 gross domestic product to 2.4 percent, from 2.25 percent. The currency appreciated 0.1 percent to 4.1965 per euro. It gained as much as 0.5 percent to 3.0776 per dollar before trading little changed at 3.0918.

South Africa’s currency climbed to an almost two-week high versus the dollar as stock-exchange data showed overseas investors boosted their holdings of the nation’s bonds by 592 million rand ($59.5 million) yesterday, a third day of inflows.

Foreign funds have bought 1.2 billion rand of the nation’s debt since a partial shutdown of the U.S. government began last week. South Africa depends on portfolio inflows to plug its current-account deficit and support the rand.

“One reason for the rand’s resilience remains the strong portfolio inflows,” John Cairns, a currency strategist at Rand Merchant Bank in Johannesburg, wrote in a note to clients. Foreign bond and equity purchases since the start of the shutdown are “equivalent to a monthly rate of around 10 billion rand, which is good but not brilliant” he said.

The rand gained as much as 0.9 percent to 9.9164 per dollar, the strongest level since Sept. 25, before trading at 9.9970, up less than 0.1 percent.

Swiss Franc

The Swiss currency trimmed a decline against the euro after SNB President Thomas Jordan said the central bank hasn’t had to intervene in currency markets to protect its franc ceiling for more than a year. The franc fell as much as 0.3 percent to 1.2295 per euro before trading at 1.2269. It gained 0.3 percent yesterday.

The partial shutdown of the U.S. government entered its second week, with congressional leaders saying the other party must move first. U.S. borrowing authority runs out Oct. 17 and the nation will have about $30 billion in cash after that. It would be unable to pay all of its bills sometime between Oct. 22 and Oct. 31, according to the Congressional Budget Office.

Senate Majority Leader Harry Reid said the Republican-controlled House should vote to end the shutdown and drop demands to change the health-care law, and House Speaker John Boehner said Reid and Obama should negotiate.

Obama Offer

Speaking at a news conference at the White House, Obama said he’s willing to talk to Republicans about anything, including changes to his health-care law, once lawmakers end the shutdown and raise the debt ceiling. He refuses to engage in discussions about tying policy considerations to opening the government or increasing the limit.

The yen gained beyond its 200-day moving average versus the greenback yesterday for the first time since November. The technical indicator, which some currency traders see as a potential turning point, was at 96.68 yesterday.

“You have a 200-day moving average that’s acting as a support level, which, if it can hold, means that the yen will weaken,” Douglas Borthwick, the head of foreign exchange at Chapdelaine & Co. in New York, said in a phone interview. “It’s very key in terms of who’s going to win the currency-weakness war.” Support, in this case for the U.S. dollar, is a chart level where buy orders may be clustered.

Yen Forecasts

The yen may strengthen to 95 per dollar by year-end as attention shifts to when the Fed will reduce its $85 billion in monthly bond purchases and Japan refrains from announcing new monetary stimulus, according to Anezka Christovova, a foreign-exchange strategist at Credit Suisse Group AG in London. Japan’s currency will end 2013 at 101 per dollar, according to the median estimate in a Bloomberg survey.

Japan had a 161.5 billion-yen ($1.7 billion) surplus in its current account, the Ministry of Finance said in Tokyo. A Bloomberg News poll forecast an excess of 520 billion yen.

The yen has tumbled 9.4 percent this year, the worst performer of 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar has gained 2.5 percent, and the euro has risen 5.8 percent.

Trading in over-the-counter foreign-exchange options totaled $28 billion, from $21 billion yesterday, according to data reported by U.S. banks to the Depository Trust Clearing Corp. and tracked by Bloomberg. Volume in options on the dollar-yen exchange rate amounted to $5.5 billion, the largest share of trades at 20 percent. Options on the greenback-Chinese-yuan rate totaled $3.7 billion, or 13 percent.

Dollar-yen options trading was 36 percent more than the average for the past five Tuesdays at a similar time in the day, according to Bloomberg analysis. Dollar-yuan options trading was 21 percent above average.

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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