Forex news

[Stanislav Bernuhov]

New Zealand's Dollar Weakens as Slower Inflation Eases Rate-Rise Pressure

The New Zealand dollar fell for the first time in two weeks after a report showed consumer prices rose at a slower pace than economists estimated, easing pressure on the central bank to increase interest rates.

Australia’s currency weakened for a second day as prospects of slowing growth in China, the South Pacific nation’s largest trading partner, damped demand for its assets. The kiwi dollar weakened against all 16 of its most-traded counterparts as swaps traders lowered bets on expected rate increases by central bank Governor Alan Bollard over the next 12 months.

The data “buys the Reserve Bank a bit more time and that’s why we’re seeing this reaction in the kiwi,” said Khoon Goh, a senior markets economist at ANZ National Bank Ltd. in Wellington. “The market should start to focus on the fact that some of the domestic momentum in the New Zealand economy seems to be easing.”

New Zealand’s dollar fell 1.2 percent to 72.12 U.S. cents as of 2:31 p.m. in Sydney from 72.97 cents in New York yesterday, when it reached 73.03 cents, its strongest since May 4. It slid to 62.74 yen from 63.75 yen.

Australia’s currency declined 0.9 percent to 87.68 U.S. cents and fetched 76.26 yen from 77.28.

Inflation in New Zealand was 0.3 percent in the three months through June, Statistics New Zealand said today, compared with economists’ expectations for a 0.4 percent gain in prices.

Reserve Bank of New Zealand Governor Bollard on June 10 raised the official cash rate for the first time since 2007. He will increase it again on July 29, according to economists surveyed by Bloomberg News. Swaps traders lowered to 1.23 percentage points, from 1.30 on July 12, expected rate increases in New Zealand over a year, a Credit Suisse AG index showed.

U.S. Growth

Asian stocks dropped, damping demand for higher-yielding currencies, on signs of a slowdown in the U.S. and Chinese economies. The MSCI Asia Pacific Index fell 0.7 percent and the Shanghai Composite Index declined 1.2 percent.

“We have seen a fairly indifferent performance on Asian equity markets which has taken some buying momentum away from the Australian dollar,” Tim Waterer, a foreign exchange dealer with CMC Markets in Sydney wrote in a note. “Market sentiment remains fickle which does lend itself to higher volatility trading for the Aussie in the near-term.”

Reports today will likely show that U.S. consumer sentiment deteriorated in July and consumer prices fell for a third month in June, according to economists surveyed by Bloomberg News.

Economic growth in China slowed to 10.3 percent in the second quarter, the statistics bureau said yesterday, less than the median estimate in a Bloomberg survey. The expansion eased from the 11.9 percent gain in January-March.

Interest Rates

Benchmark interest rates are 2.75 percent in New Zealand and 4.5 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. The risk in such trades is that currency market moves will erase profits.

The kiwi dollar has advanced 1.5 percent this week versus the greenback and Australia’s currency has weakened 0.1 percent.

Australian bond futures fell, with the 10-year contract for September delivery at 94.88 on the Sydney Futures Exchange from 94.90 yesterday. The implied yield on the futures stood at 5.12 percent. New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, fell to 4.19 percent from 4.23 yesterday.

by bloomberg.com

[Stanislav Bernuhov]

Euro Gains as Stress Test Optimism Reduces Sovereign Debt Crisis Concern

The euro rose against most of its major counterparts on speculation the release of European bank stress-test results this week will ease concern that the region’s sovereign debt crisis will worsen.

The Hungarian forint fell to the weakest level in more than 14 months against the euro after the International Monetary Fund and European Union ended talks with the government without endorsing Prime Minister Viktor Orban’s plans to control the budget deficit. The yen dropped after Dow Jones Newswires reported the Bank of Japan may take steps to ease monetary policy should the currency stay around 85 per dollar.

“People are very bullish regarding the clarity of the stress tests,” said Sebastien Galy, a currency strategist at BNP Paribas SA in New York. “Potentially it’s going to be a lot better than people expect.”

The euro gained 0.3 percent to $1.2968 at 11:01 a.m. in New York, after earlier dropping to $1.2871. It reached $1.3008 on July 16, the strongest level since May 10. The single currency climbed 0.5 percent versus the Japanese yen to 112.52. The euro appreciated 1 percent to 85.31 U.K. pence.

The euro rose against 15 of its 16 most-traded counterparts, excluding the Danish krone. Canada’s dollar gained against all the major currencies except for the krone and euro with the central bank forecast to increase interest rates tomorrow.

European regulators are examining the strength of 91 banks to determine whether they can survive potential losses on sovereign-debt holdings. Stress-test results will be released July 23.

Stress Test

“European officials are trying to mitigate fears by saying that the banks will pass, but the market is still nervous of the amount of capital that may need to be raised,” said Jessica Hoversen, a Chicago-based analyst at the futures broker MF Global Holdings Ltd. “There are many uncertainties, and until those are answered, you’re going to have choppy trades.”

The euro weakened earlier after Moody’s Investors Service cut Ireland’s credit ranking on level to Aa2, citing a “significant loss of financial strength” and the cost of bank bailouts. Moody’s also lowered its rating on Ireland’s so-called bad bank, the National Asset Management Agency to Aa2, with a stable outlook.

The euro’s biggest rally in a year is threatening exporters in Europe’s weakest economies as they grow more reliant on international sales for growth.

Yen Declines

The 9.5 percent gain to $1.3008 from a four-year low on June 7 reduced speculation the region’s debt crisis would break up the single currency. At the same time, the head of Spain’s Exporters Club says the stronger euro will make it harder to counter a “paralyzed” domestic market.

Japan’s currency weakened versus 11 of 16 most actively traded counterparts as the Dow report cited people familiar with the deliberations of officials at the central bank. Japanese markets were shut today for a holiday.

“Comparisons are being made to November last year, when dollar-yen hit its low below 85 and around that time the BOJ announced its three-month lending facility to financial institutions,” said Derek Halpenny, European head of currency research at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “There’s no talk of intervention in the market, but rather of policy measures.”

The National Association of Home Builders/Wells Fargo confidence index in the U.S. declined to 14 in July, the least since April 2009, data from the Washington-based group showed today. U.K. home asking prices fell 0.6 percent in July and will drop 7 percent in the second half, Rightmove Plc, the operator of the nation’s biggest property website, said in a statement today in London.

Forint Drops

Hungary’s forint declined for a second day versus the dollar and dropped to its weakest level against the euro since April 2009.

The IMF said in a July 17 statement it ended its review of Hungary’s 20 billion-euro emergency bailout because “a range of issues remain open.”

The currency fell as low as 225.21 per dollar, before trading at 224.30. It depreciated as much as 3.1 percent to 290.85 against the euro, before trading at 290.81.

“The lack of agreement in talks with the IMF and EU is likely to further unsettle the Hungarian forint,” said Greg Gibbs, a currency strategist at Royal Bank of Scotland Group Plc in Sydney. “It could be a factor that keeps risk appetite low to start this week.”

The Bank of Canada will raise its policy rate by a quarter- percentage point tomorrow for the second time in two months, according to all 20 economists surveyed by Bloomberg News. Governor Mark Carney became the first Group of Seven central banker to lift borrowing costs on June 1, raising the benchmark interest rate to 0.5 percent.

The Canadian currency climbed 0.4 percent to C$1.0543 per U.S. dollar in Toronto, compared with C$1.0582 on July 16. One Canadian dollar buys 94.85 U.S. cents.

by bloomberg.com

[Stanislav Bernuhov]

Pound Strengthens Against Dollar, Euro as U.K. Retail Sales Beat Estimates

The pound posted its biggest gain in a week against the dollar after a report showed U.K. retail sales rose more than economists predicted in June, damping concern that the economy might slip back into a recession.

Sterling also strengthened versus the euro. Sales climbed 0.7 percent on the month, the Office for National Statistics said today in London. Economists in a Bloomberg survey predicted a 0.5 percent gain. U.K. stocks advanced with their European counterparts after growth in Europe’s services and manufacturing industries unexpectedly accelerated in July.

“The retail numbers were very punchy,” said Paul Mackel, a director of currency strategy at HSBC Holdings Plc in London. “The European data set has been surprisingly strong and the pound is riding the coattails.”

The pound advanced 0.7 percent to $1.5271 as of 10:52 a.m. in London, after earlier climbing by 0.8 percent, the biggest gain since July 15. The British currency appreciated 0.2 percent to 83.96 pence per euro.

Sterling may rise to $1.62 by year-end, Mackel said. The median estimate of 37 analyst predictions compiled by Bloomberg is for the currency to end 2010 at $1.47.

U.K. 10-year government bonds were little changed, erasing an earlier gain. The yield was at 3.34 percent after being as low as 3.31 percent. The two-year yield was at 0.79 percent.

Gilts returned 5.8 percent this year, compared with a gain of 3.1 percent for bonds in the euro area, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German debt rose 6.6 percent, the indexes showed.

by bloomberg.com

[Stanislav Bernuhov]

Gold Rises, Climbs Above $1,200 in New York on Outlook for More Purchases

Gold rose for a fourth day in New York, climbing above $1,200 an ounce on speculation that investors will increase purchases of the precious metal as a means of protecting wealth.

The euro rebounded against the dollar before stress-test results today that may reveal loan losses at European banks. Gold, trading at the highest price in a week, is set for its biggest weekly increase since the five days ended June 18.

“The dip-buying interest seen in gold over the past few days is an encouraging indicator and suggests ongoing diversification from fiat currencies by investors looking for more tangible assets,” said James Moore, an analyst at TheBullionDesk.com in London. “We could see a volatile close tonight” as the stress-test results are released, he said.

Gold futures for August delivery added $4.60, or 0.4 percent, to $1,200.20 an ounce at 8:28 a.m. on the Comex in New York. Prices are up 1 percent this week. Gold for immediate delivery in London was 0.5 percent higher at $1,201.

Bullion fell to $1,198.75 an ounce in the morning “fixing” in London, used by some mining companies to sell output, from $1,199.50 at yesterday’s afternoon fixing. The dollar slid as much as 0.6 percent.

Gold futures are up 9.1 percent this year and set a record $1,266.50 an ounce on June 21 as investors sought to protect their wealth against the European debt crisis and on concern that the global economy may slow. Results from the European Union’s bank stress tests may be published starting at 6 p.m. Brussels time today as regulators determine whether lenders can survive possible losses on sovereign-debt holdings.

SPDR Assets

Assets in the SPDR Gold Trust, the biggest exchange-traded fund backed by bullion, fell 6.08 metric tons to 1,302.05 tons yesterday, according to the company’s website. Global holdings of the metal by ETFs declined 7.1 tons to 2,064.6 tons yesterday, according to Bloomberg data from 10 providers.

“Gold has currently lost the support which helped drive prices to a record,” Wang Huijia, an economist at China Merchants Futures Co., said from Guangzhou. “The Europe debt crisis seems to have calmed down; however, gold’s declines will be limited, as a resolution is far from over.”

The euro gained against the dollar after Ifo institute data showed German business confidence unexpectedly surged to a three-year high in July after exports boomed and economic growth accelerated. The U.K. economy expanded almost twice as much as economists forecast in the second quarter, the Office for National Statistics said today.

Gold Outlook

Twelve of 27 traders, investors and analysts surveyed by Bloomberg, or 44 percent, said bullion will rise next week. Seven forecast lower prices and eight were neutral. Gold will average $1,205 this year, up from a previous estimate of $1,129, according to UBS AG. It has averaged $1,159.70 so far.

“We believe the spotlight will return to focus on sovereign-debt burdens in Europe and beyond,” UBS analysts including Edel Tully said in a report dated yesterday. “The fear of further debasement of fiat currencies follows closely. In turn, we expect the fear trade” will increase in the second half and into next year, the analysts said.

Silver for September delivery in New York rose 0.6 percent to $18.23 an ounce. Platinum for October delivery gained 1 percent to $1,544.80 an ounce. Palladium for September delivery was 0.9 percent higher at $461 an ounce.

by bloomberg.com

[Stanislav Bernuhov]

Euro Bears Vanish as End of Stress Makes Goldman a Bull

The combination of growing confidence in Europe’s economy and mounting evidence of a slowdown in the U.S. is driving euro bears into hiding.

After tracking the euro’s slide from about $1.45 at the beginning of 2010, the median forecast of currency strategists has stayed within two cents of $1.20 since the start of June, according to data compiled by Bloomberg. Goldman Sachs Group Inc. and Wells Fargo & Co. raised their estimates in the past two weeks, joining HSBC Holdings Plc and Deutsche Bank AG in predicting a stronger euro.

While the euro weakened 15 percent in the first half as the region’s debt crisis threatened to tear the currency union apart, investors have shifted their focus to the U.S. as the dollar depreciated 8 percent from a four-year high in June. U.S. economic data fell short of economists’ estimates this month by the most since March 2009, while euro-region reports exceeded forecasts since April, according to Citigroup Inc. indexes.

“People got a bit too excited about the idea the euro-area was going to break up and forgot that the U.S. has a whole load of problems of its own,” said David Bloom, global head of currency strategy at HSBC in London, who has predicted since the start of June that the euro would end the year at $1.35.

Confidence in the euro returned after the most-indebted countries in the region announced budget cuts and the European Union crafted a 750 billion-euro ($970 billion) financial backstop in May to forestall defaults. Spain, Portugal, Ireland and Greece successfully auctioned more than 17 billion euros of bonds and bills since July 13.

Economic Outperformance

Speculation the recovery would accelerate increased when Germany’s Ifo institute said July 23 that its business climate index unexpectedly jumped to the highest level since July 2007. A composite index of European services and manufacturing industries climbed to 56.7 in July from 56 the month before, London-based Markit Economics said a day earlier.

Investors showed little surprise on July 23, when the Committee of European Banking Supervisors said seven of 91 EU banks subject to stress tests failed with a combined capital shortfall of 3.5 billion euros.

The euro rose 0.2 percent to $1.2937 as of 8 a.m. in New York, after appreciating in three of the past four weeks. The 16-nation currency appreciated 9 percent since June 7, when it slid to $1.1877, the weakest level since March 2006. It also advanced 2.6 percent since falling to a more than seven-year low on June 29, according to Bloomberg Correlation-Weighted Currency Indexes.

Outlook Reversed

Analysts are raising their forecasts as Citigroup’s euro- region economic surprise index reached a three-year high of 131 on May 27. The equivalent U.S. gauge fell to a 16-month low of minus 43.6 on July 1. The measures examine historical standard deviations of data surprises by comparing releases with Bloomberg median estimates.

Goldman Sachs analysts led by Thomas Stolper in London reversed their outlook for the euro twice in two months, and said in the most recent forecast that the dollar will weaken against the euro by January as U.S. growth slows. The New York- based bank says the shared currency will reach $1.22 in three months, $1.35 in six months and $1.38 in a year. As recently as June, Goldman Sachs forecast the dollar would surge to a seven- year high.

Weaker Growth

“Weaker U.S. growth, reasonably solid euro-zone macro data and less political-fiscal disruptions than feared have been a feature of the past few weeks,” Goldman Sachs analysts wrote in the report dated July 14.

Wells Fargo, based in San Francisco, raised its six-month euro forecast to $1.24 from $1.20 on July 14, said Vassili Serebriakov, a currency strategist in New York.

“The main positives for the euro have been stronger-than- expected euro economic numbers and a recovery in risk appetite,” he said. Serebriakov said the euro will weaken longer term, falling to $1.18 in 12 months.

While U.S. growth has slowed more than forecast, the economy will still outpace Europe over the coming year as budget cuts start to brake the recovery, said Ian Stannard, a senior foreign-exchange strategist in London at BNP Paribas SA. The Paris-based lender scaled back its forecast for a decline in the euro on July 23, saying it will fall to $1.12 in the first quarter, from a previous prediction of parity.

‘Still in Place’

“The reasons why a weaker euro are both likely and needed are still in place,” said Stannard. “The market still hasn’t really adjusted to the prospect of lower euro-zone growth once the fiscal tightening that has been announced is implemented and begins to bite.”

The U.S. economy will expand 3.1 percent this year, according to the median of 55 analyst forecasts compiled by Bloomberg. The euro-region will grow 1.1 percent, a separate median estimate shows.

German Chancellor Angela Merkel’s Cabinet approved four years of budget reductions and revenue programs worth 81.6 billion euros on July 7. Greece aims to cut its budget deficit to 8.1 percent of gross domestic product this year, from 13.6 percent in 2009, and meet the EU’s 3 percent limit by 2014. Portugal plans to reach the EU target by 2012, reducing it from 9.4 percent last year.

The euro-region deficit will narrow to 6.1 percent of GDP in 2011 from 6.6 percent this year, according to European Commission forecasts on May 5. The U.S. gap will hit 10 percent in 2010 and 9.9 percent next year, the figures show.

While European governments are pruning, U.S. President Barack Obama signed into law a $34 billion extension of unemployment benefits on July 22.

Treasury Yields

“The market seems to be favoring regions where policymakers are taking an active role on deficit reduction and that’s not the U.S.,” said Thanos Papasavvas, who helps manage more than $5 billion in currencies at Investec Asset Management Ltd. in London. “For Europe it may be painful in the short- term, but they are dealing with it. The U.S., which has a much bigger problem, isn’t even beginning to deal with it.”

At the same time, the bond market is telling the U.S. government to focus on growth, not the deficit. Yields on two- year Treasury notes fell to a record low 0.5516 percent on July 23 and are 16 basis points, or 0.16 percentage point, less than similar-maturity German debt.

Housing starts in the U.S. fell more than forecast last month, the Commerce Department said July 20. Initial jobless claims rose to 464,000 in the week ended July 17, exceeding the highest estimate of economists surveyed by Bloomberg, Labor Department figures on July 22 in Washington showed.

Bearish on Dollar

Futures traders turned bearish on the dollar for the first time in almost three months on July 13, according to data from the Commodity Futures Trading Commission in Washington. So- called short positions, or bets prices will fall, by hedge funds and other large speculators outnumbered long positions by 99,175 on July 20, CFTC figures show.

The changing fortunes for the euro and the dollar caught foreign-exchange funds by surprise, according to the Parker BlackTree Currency Index, which tracks 22 currency funds that manage about $15 billion. The index lost 1.7 percent between May 14, when valuations reached the highest level since November, and July 16.

“Foreign exchange is the world’s biggest fruit and vegetable store, with millions of people playing it 24 hours a day,” Goldman Sachs Chief Global Economist Jim O’Neill said on July 21 in a radio interview with Tom Keene on Bloomberg Surveillance. “Anybody who thinks they can get foreign exchange right all the time should be in a lunatic asylum.”

by bloomberg.com