Oct. 27 (Bloomberg) -- The dollar traded near a one-week high versus the euro on concern U.S. bank losses will derail the global economic recovery, spurring investors to reduce holdings of higher-yielding assets.
The dollar rose against 12 of its 16 major counterparts on speculation U.S. lawmakers will phase out a tax credit for homebuyers and Bank of America Corp. will sell shares to pay back its government bailout. New Zealand’s dollar fell for a fourth day after Prime Minister John Key said the kiwi’s gains were damping inflation concerns, supporting expectations the Reserve Bank of New Zealand will hold off raising interest rates.
“There are lingering downside risks to the U.S. housing sector and banking industry,” said Mitsuru Saito, chief economist in Tokyo at Tokai Tokyo Securities Co. “We may need to carefully reassess the sustainability of a rally in risk assets funded by the dollar.”
The dollar traded at $1.4872 per euro at 11:47 a.m. in Tokyo from $1.4876 yesterday in New York. The greenback reached $1.5063 yesterday, the weakest level since August 2008. The dollar was at 92.08 yen from 92.19 yen yesterday, after earlier today reaching 92.32 yen, the strongest level since Sept. 21. The euro was at 136.95 yen from 137.10 yen.
New Zealand’s dollar was at 74.72 U.S. cents from 74.77 cents in New York yesterday when it dropped as low as 74.53 cents, the least since Oct. 20.
The Nikkei 225 Stock Average fell 1.5 percent and the MSCI Asia Pacific Index of regional shares declined 1.5 percent today. The Standard & Poor’s 500 Index slid 1.2 percent in New York yesterday.
Stocks Tumble
U.S. stocks fell after Senator Bill Nelson said senate leaders are negotiating to extend and gradually reduce the housing tax credit through 2010. The credit was set to expire at the end of November.
Bank shares fell 3.3 percent collectively, the steepest decline among the S&P 500’s 24 industries, after Rochdale Securities LLC analyst Dick Bove downgraded Fifth Third Bancorp, SunTrust Banks Inc. and U.S. Bancorp on concern loan losses will remain high.
Federal Deposit Insurance Corp. Chairman Sheila Bair said yesterday that banks continue to face “serious challenges.” Tapping a Treasury Department credit line to replenish funds depleted by a surge of bank failures would harm her agency and the banking industry, she said at an American Bankers Association convention in Chicago.
Exporter Selling
The yen rose against 14 of the 16 most-active currencies on speculation Japanese companies are bringing back earnings on overseas assets before the end of the month.
Large Japanese manufacturers expected the yen to average 94.50 per dollar in the 12 months to March 2010, according to the Bank of Japan’s quarterly Tankan survey released Oct. 1. The forecast in the previous report was for a rate of 94.85.
“There’s talk that exporters are buying the yen,” said Lee Wai Tuck, a currency strategist at Forecast Pte in Singapore. “This is causing the dollar-yen to dip.”
Toyota Motor Corp. and Honda Motor Co., Japan’s two biggest automakers, may increase overseas production as a stronger yen makes exports less competitive. Japanese carmakers have lost U.S. market share to South Korea’s Hyundai Motor Co. after the yen rose to a 13-year high against the dollar in January.
“We must think about producing overseas what is now being produced in Japan,’” Toyota Executive Vice President Takeshi Uchiyamada said at the Tokyo Motor Show yesterday. The yen may “have a big impact on Japanese production,” Honda’s President Takanobu Ito said.
Kiwi Falls
New Zealand’s dollar, known as the kiwi, fell to the lowest level in almost one week against the U.S. dollar after Prime Minister Key said the very high exchange rate is “helping offset any imported inflation concerns.”
“I would personally be surprised if they raise rates in 2009,” Key said, speaking of policy makers at the nation’s central bank.
The New Zealand dollar rose to a 15-month high of 76.35 U.S. cents last week.
The Reserve Bank of New Zealand, which acts independently of the government, will announce its next rates decision on Oct. 29. Consumer prices rose 1.3 percent in the third quarter, within the bank’s 1 percent to 3 percent targeted band. Key, a former foreign-exchange trader with Merrill Lynch & Co., said the country’s base rate is already “well above” most of its trading partners.
“People will be a little wary of the RBNZ on Thursday and just how excited interest-rate markets have become about the prospects for an early RBNZ tightening,” said Mike Jones, a currency strategist at Bank of New Zealand Ltd. in Wellington. “The New Zealand dollar is being sold on higher risk aversion and a broadly stronger U.S. dollar.”
Benchmark Rates
Benchmark interest rates are 2.5 percent in New Zealand and 3.25 percent in Australia, compared with 0.1 percent in Japan and as low as zero in the U.S., attracting investors to the South Pacific nations’ higher-yielding assets and driving up their currencies.
The euro may advance to the “psychological” level of 140 yen should the currency close above so-called resistance at 138.70 yen, RBC Capital Markets said, citing trading patterns.
Resistance at 138.70 yen represents the peaks of a “double top” and the horizontal line of an “ascending triangle,” George Davis, chief technical analyst in Toronto at RBC Capital Markets, wrote in an e-mail to Bloomberg News yesterday.
“A daily close above 138.70 would not only pierce a double top, but it would also generate the bullish resolution of an ascending triangle pattern,” Davis wrote. “This outcome would project additional gains toward secondary resistance levels at 140.00, followed by 141.68 and 143.16.”
To contact the reporters on this story: Yasuhiko Seki in Tokyo at yseki5@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net
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