The yen weakened against the Australian and New Zealand dollars as Asian stocks extended gains, prompting investors to purchase higher-yielding securities. The dollar declined versus the pound before reports today that may show U.S. retail sales fell and producer-price inflation slowed, adding pressure on the Federal Reserve to keep interest rates low.
“China’s economic growth still looks robust,” said Takashi Kudo, senior manager of the foreign-exchange division support center in Tokyo at NTT SmartTrade Inc., a unit of Japan’s largest phone company. “Against that backdrop, the yen may be sold.”
The yen fell to 115.84 per euro at 7:24 a.m. in London from 115.65 in New York yesterday, when it touched 114.86, the highest level since May 27. It was at 80.30 per dollar from 80.24. The euro rose to $1.4427 from $1.4413. Against the pound, the greenback slipped to $1.6416 from $1.6377.
Japan’s currency declined 0.4 percent to 85.46 per Australian dollar and weakened 0.3 percent to 65.66 per New Zealand dollar.
The MSCI Asia Pacific Index of shares climbed 1.1 percent, rebounding from a drop of as much as 0.2 percent. China’s statistics bureau said retail sales rose 16.9 percent last month while industrial production increased by more than economists had projected. The acceleration in the consumer price index was in line with economists’ forecasts, easing concern the government will take measures to damp growth.
China Growth
Today’s data offset signs the fastest-growing major economy is cooling. New loans in China tumbled in May and money supply grew at the slowest pace since 2008, the central bank reported yesterday. Inflation has exceeded the government’s 4 percent target each month this year. The Asian nation is Australia’s largest trading partner and New Zealand’s second-biggest export destination.
“China’s demand- or internally-driven growth is still pretty strong: That’s positive for risk currencies,” said Jonathan Cavenagh, a foreign-exchange strategist in Singapore at Westpac Banking Corp., Australia’s second-largest lender. “The fact that the CPI wasn’t stronger than expected means maybe less need to tighten policy.”
Benchmark rates are 2.5 percent in New Zealand and 4.75 percent in Australia, compared with as low as zero in Japan, attracting investors to the South Pacific nations’ higher- yielding assets. The risk in such trades is that currency market moves will erase profits.
BOJ Lending Program
The Bank of Japan today kept the benchmark overnight rate unchanged in a range of between zero percent and 0.1 percent and left unchanged its 30 trillion yen ($374 billion) lending facility and 10 trillion yen asset-buying program.
It also unveiled a new 500 billion yen plan to make loans available to companies at 0.1 percent interest for two years, a move aimed at revitalizing an earthquake-hit economy by channeling funds to industries.
The dollar also fell amid signs U.S. growth is slowing. Retail sales declined 0.5 percent in May, the first drop since June, according to a Bloomberg News survey of economists before the Commerce Department report today. The producer-price index rose 0.1 percent in May after a 0.8 percent increase in April, another survey showed before today’s data.
Reassessing Outlook
Federal Reserve Bank of Richmond President Jeffrey Lacker said recent U.S. economic data have prompted him to reconsider his forecast for growth.
The data are “causing us to rethink our outlook for growth,” Lacker said to reporters after a speech yesterday in Roanoke, Virginia. “We could be stuck below trend for some time,” he said.
Demand for the euro was tempered amid concern European Union finance ministers meeting today will struggle to resolve a debt crisis in Greece.
An agreement is critical to Greece’s solvency as the International Monetary Fund can’t pay its share of a 12 billion- euro ($17.3 billion) bailout in July unless a plan is in place to plug Greece’s 2012 financing gap of about 30 billion euros. Standard & Poor’s yesterday lowered its long-term sovereign credit ratings on Greece three levels to CCC. The outlook on the long-term ratings is negative.
Risk in Procrastinating
“A further pronounced procrastination will weigh heavily on the euro, even though the longer term likelihood is that they come up with a resolution on further bailout packages for Greece,” said Timothy Riddell, senior strategist at ANZ Banking Group Ltd. in Singapore.
Luxembourg’s Prime Minister Jean-Claude Juncker, who leads the group of euro-area finance ministers, said in an interview on Radio Berlin-Brandenburg June 11 that any bailout for Greece must include “voluntary” investor participation. EU finance ministers will meet in Brussels at 7 p.m. today.
Credit-default swaps on Greece jumped 41 basis points to a record high of 1,604 yesterday, according to CMA. Contracts on Ireland soared 27 basis points to 740 and on Portugal climbed 21 basis points to 764. The swaps are benchmarks for protecting bonds against default and traders use them to speculate on credit quality. A drop signals improving perceptions of creditworthiness, while an increase suggests the opposite.
--With assistance from Yoshiaki Nohara in Tokyo. Editors: Jonathan Annells, Rocky SwiftTo contact the reporters on this story: Ron Harui in Singapore at rharui@bloomberg.net; Kristine Aquino in Singapore at kaquino1@bloomberg.net
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net
