Dollar Drops to Six-Week Low as Job Market Pares Safety Demand
By Oliver Biggadike and Ye Xie
May 9 (Bloomberg) -- The dollar declined beyond $1.36 against the euro for the first time since March as a report showing slower deterioration in the U.S. labor market reduced demand for the relative safety of the country’s assets.
Canada’s currency advanced yesterday to the highest level versus the greenback since November on that nation’s unexpected addition of jobs in April. The yen slid versus all but two of the 16 most traded currencies tracked by Bloomberg and touched a seven-month low against Australia’s dollar as evidence the recession is easing spurred demand for higher yields.
“The platform is here for significant dollar weakness for the rest of the year,” said Tom Fitzpatrick, chief technical analyst at Citigroup Global Markets Inc. in New York. “The dollar is going to get hit and hit hard in the months ahead.”
The dollar lost 2.7 percent to $1.3634 versus the euro yesterday, from $1.3273 on May 1. It touched $1.3651 yesterday, the weakest level since March 25. The greenback dropped 0.7 percent to 98.47 yen, from 99.11. The euro increased 2 percent to 134.23 yen, from 131.59.
The ICE’s trade-weighted Dollar Index
, whose biggest component is the euro, touched the lowest level since Jan. 9. It fell 1.7 percent yesterday, the biggest one-day decrease since March 19, the day after the Federal Reserve said it would buy up to $300 billion in Treasuries to keep interest rates low and stimulate the economy.
The euro gained versus the dollar for a third straight week on speculation the European Central Bank’s plan to buy 60 billion euros ($80.5 billion) in covered bonds isn’t aggressive enough to debase the currency. President Jean-Claude Trichet
told reporters in Frankfurt on May 7 the purchase of the debt is a “credit easing.”
“The euro has appreciated against almost everything, including the Japanese yen,” said Hidetoshi Yanagihara
, senior currency trader at Mizuho Corporate Bank in New York. “Risk appetite just came back on the optimistic view of the near-term U.S. economy.”
The yen dropped 4.9 percent versus the New Zealand dollar and 4.4 percent against the Australian dollar this week as a more optimistic global economic outlook prompted investors to get funds in countries with low borrowing costs and buy assets where returns are higher. The Bank of Japan’s target lending rate of 0.1 percent compares with 3 percent in Australia and 2.5 percent in New Zealand.
Japan’s currency fell yesterday to 75.91, the weakest level against the Aussie since Oct. 6, and reached 59.52 versus the kiwi, the weakest since April 6.
Global stocks advanced yesterday on the U.S. jobs report, extending the Standard & Poor’s 500 Index
’s weekly rally to 5.9 percent, the biggest since March. Treasuries fell this week, pushing the 10-year note’s yield
to 3.38 percent yesterday, the highest level since November.
The Dollar Index
, which the ICE uses to track the greenback against the euro, yen, pound, Canadian dollar, Swedish krona and Swiss franc, fell for a third straight week, the longest stretch of decreases since December.
U.S. companies eliminated 539,000 jobs in April after a revised decrease of 699,000 in the previous month, the Labor Department reported yesterday in Washington. The median forecast of 70 economists surveyed by Bloomberg was for a drop of 600,000. The unemployment rate increased to 8.9 percent.
“Things are improving a little bit faster than people were expecting,” said Sebastien Galy
, a currency strategist at BNP Paribas Securities SA in New York. “People have been so bearish on the euro in general. Indeed, what we’re seeing is euro-dollar breaking higher, and our recommendation is to buy the euro.” The euro may rise to $1.40 in two weeks, he said.
Central banks will keep using the dollar as the world’s reserve currency, Reuters cited Chinese ambassador to the U.S. Zhou Wenzhong
as saying yesterday. He described views that the dollar could be replaced with a basket of other currencies as a “scholarly exploration,” according to Reuters.
The Canadian dollar increased for a sixth straight week against the dollar, gaining 3 percent in the biggest advance since October. It touched C$1.1491 yesterday, the strongest level since Nov. 5.
Employers in Canada added a net 35,900 workers in April after a reduction of 61,300 in the previous month, Statistics Canada said yesterday in Ottawa. The median forecast of 24 economists surveyed by Bloomberg was for a drop of 50,000.
Australia’s dollar posted its 10th weekly advance against the greenback, finishing at 77.08 U.S. cents in the longest winning streak since 2003. Reports this week showing an expansion in Chinese manufacturing and an increase in car sales stoked optimism the global recession is abating.
China a ‘Barometer’
“China right now is a barometer for the economy,” said Jessica Hoversen
, a foreign-exchange analyst at MF Global Ltd. in Chicago. “As long as the idea continues that the Chinese economy will be this Atlas in the global recovery, then you’re going to see tailwinds underpin the Aussie.”
The Australian dollar may rise in the next two weeks to 78 U.S. cents, a level where the currency’s plunge paused in September, Hoversen said. Atlas was the giant in Greek mythology who was condemned to hold up the sky on his shoulders.
To contact the reporters on this story: Oliver Biggadike
in New York at [email protected]
; Ye Xie
in New York at [email protected]
Last Updated: May 9, 2009 08:00 EDT