Dollar falls against euro as China raises rates

NEW YORK (AP) — The U.S. dollar fell to the euro in late trading Tuesday after China announced that it would raise rates. Investors have also become less worried about the unrest in Egypt, moving away from the dollar and looking to invest in riskier currencies.

China's central bank said Tuesday that it would raise deposit and lending interest rates by a quarter percentage point, the second time China has raised rates in over a month.

"It was expected, but the timing was unknown," said Camilla Sutton, chief currency strategist at Scotia Capital. "Investors are anticipating more interest rate hikes out of China."

The euro rose to $1.3627 late Tuesday, from $1.3591 Monday. The U.S. dollar had been gaining against the euro since late January when protests erupted on the streets of Egypt and investors were looking to invest in safe havens, such as the U.S. dollar. But investor concerns about Egypt have eased somewhat, analysts said, pushing riskier currencies higher against the dollar Tuesday.

"The situation in Egypt appears calmer," said Joseph Trevisani, the chief market analyst at FXSolutions. "The protests haven't gone away but there seems to be less intent to confront."

The U.S. dollar was also lower against most Asian and Latin American currencies Tuesday. In other trading Tuesday, the British pound fell to $1.6057 from $1.6121. The U.S. dollar rose to 0.9634 Swiss franc from 0.9552 Swiss franc, and also rose to 99.60 Canadian cents from 99.03 Canadian cents.

The U.S. currency also rose to 82.38 Japanese yen Tuesday from 82.29 Japanese yen Monday.

Source: Bloomberg By The Associated Press 

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Dollar Declines as Fed Chief Says U.S. Unemployment to Remain `Elevated'

The dollar fell for a third day against the currencies of major U.S. trade partners as Federal Reserve Chairman Ben S. Bernanke said the unemployment rate is likely to remain high “for some time.” 

The euro extended gains, rising against all of its most- traded counterparts, as Bernanke said high unemployment will persist even after the biggest two-month drop in the jobless rate since 1958, a fall to 9 percent announced last week. 

“His general tone seems to be quite dovish,” said Alan Ruskin, global head of Group-of-10 foreign-exchange strategy at Deutsche Bank AG in New York. “The market is getting used to the idea that even with the improvement in the U.S. data, the Fed’s going to be very slow to respond with tightening and therefore the dollar is not going to be that responsive to strong economic data.” 

The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six trade partners including the euro and yen, fell 0.4 percent to 77.662 at 10:14 a.m. in New York. 

Source: Bloomberg By Catarina Saraiva 

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Jobs market remains robust: ANZ survey

THE jobs market remained robust in January as total employment advertising in newspapers and on the internet rose 2.4 per cent from December, despite widespread damage to business in Queensland after floods devastated many towns.

It was the 12th consecutive monthly rise in employment advertising, ANZ said today. Job advertising was up 40.5 per cent from a year earlier, confirming a stellar year for the $1.3 trillion commodity-rich economy, and affirming a forecast on Friday by the Reserve Bank of Australia that solid employment creation is set to continue.

In a breakdown of the January data, newspaper job ads fell 0.1 per cent and internet job ads rose 2.5 per cent.

ANZ said flooding held back the pace of job creation in the week ending January 16. After adjusting for the impact, total job advertising was likely closer to 3.1 per cent stronger over the month. The Queensland disaster is expected to shave 0.5 percentage points off economic growth in 2010-11.

"Even before taking account of the impact of the Queensland floods, the 2.4 per cent rise in job advertising in January was a relatively healthy result," said Ivan Colhoun, head of Australian economics at ANZ. "This suggests Australian labour demand remained reasonably solid in the latter months of 2010 in spite of some patchiness in a number of sectors of the economy."

Still, all eyes remain on the growing scarcity of skilled labour in Australia as the economy heads toward full employment. It's a dynamic which is expected to fuel inflationary pressure in 2011, especially as growth revs up in the second half of the year fanned by Queensland's reconstruction and accelerated investment in the booming mining sector.

Official employment data for January will be released on Thursday. ANZ expects a further 35,000 jobs were created in January taking unemployment to 4.9 per cent from 5.0 per cent.

Source: Business with the Wall Street Journal by James Glynn 

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Euro Declines as Weaker-Than-Forecast Factory Report Spurs Economy Concern

The euro slid for a fourth day versus the dollar as data showed German factory orders fell more than analysts forecast in December, while U.S. reports this week are forecast to indicate the nation’s recovery is gaining strength. 

The 17-nation shared currency erased earlier gains versus the yen after the Economy Ministry in Berlin reported factory orders dropped 3.4 percent from November. The pound rose against all of its 16 most-traded counterparts on speculation the Bank of England will be forced to raise interest rates to contain inflation. Norway’s krone weakened as crude oil fell and manufacturing in December was less than expected.

“We’re used to some fairly disappointing data coming from the periphery, and it has been the core that has been holding Europe up and driving growth,” said Ian Stannard, a senior currency strategist at BNP Paribas SA in London. “The fact that we are seeing weaker data at the core of Europe as well is a worrying sign for the euro.” 

The euro dropped 0.4 percent to $1.3521 at 9:20 a.m. in New York, the weakest since Jan. 21, after rising earlier to $1.3627. The single currency fell 0.3 percent to 111.33 yen, from 111.62 yen on Feb. 4. The dollar strengthened 0.2 percent to 82.31 yen, from 82.18. 

The MSCI World Index gained 0.2 percent, and futures on the Standard & Poor’s 500 Index rose 0.3 percent. Copper climbed to records in London and New York as investors speculated a U.S. economic recovery is under way. 

U.S. Consumer Credit

 

A report today is forecast to show consumer borrowing in the U.S. rose in December for a third month. Credit climbed by $2.5 billion after increasing $1.3 billion in November, the Federal Reserve will say today in Washington, according to the median forecast of 25 economists in a Bloomberg survey. 

Economists had forecast a 1.5 percent decline in German factory orders, according to the median of 37 estimates in a Bloomberg News survey. 

Norway’s krone was the worst performer against the dollar as oil futures touched the lowest level in more than a week, $88.28 a barrel in New York. The currency declined for a fourth day against the greenback as data showed Norwegian manufacturing production fell 1 percent in December, compared with a 0.5 percent gain forecast in a Bloomberg survey. 

The krone weakened 0.5 percent against the dollar to 5.7842, from 5.7558 on Feb. 4. The pound rose as short-term interest rates increased. The two-year gilt yield climbed six basis points to 1.58 percent after reaching 1.63 percent, the most since February 2009. The implied yield on short-sterling futures contracts for December 2011, which anticipates where short-term interest rates will be, rose five basis points to 1.75 percent as traders added to bets for higher borrowing costs. The Bank of England’s Monetary Policy Committee is scheduled to meet on Feb. 10. 

‘Regained Some Ground’ 

“Sterling regained some ground at the start of the week, and we would expect further recovery as we move closer to the February MPC meeting on Thursday and especially the quarterly inflation report next week,” Valentin Marinov, a senior currency strategist at Citigroup Inc. in London, wrote in a note to clients. 

A report this week is forecast to show U.K. manufacturing expanded for an eighth month in December. Output rose 0.4 percent after a 0.6 percent gain in November, the Office for National Statistics will say on Feb. 10, according to a Bloomberg survey. 

On the same day, the Bank of England is forecast to keep its bond-purchase plan at 200 billion pounds ($323 billion) and leave benchmark rates at a record low 0.5 percent, according to all 62 economists in a Bloomberg News survey. 

Policy Makers Split 

Policy makers split last month. Martin Weale joined Andrew Sentance’s push to raise the key rate a quarter point to control prices, while Adam Posen continued a drive he started in October to expand bond purchases to support growth. 

The pound strengthened 0.5 percent to 83.94 pence per euro, and 0.2 percent to 132.60 yen. It was little changed at $1.6118. 

The Australian dollar advanced against all its major counterparts, excluding the pound, as job advertisements in the nation rose for a ninth month. Jobs advertised in newspapers and on the Internet climbed 2.4 percent in January from December, when they increased a revised 1.2 percent, Australia & New Zealand Banking Group Ltd. said in a report released in Melbourne. 

Australia’s currency rose 0.1 percent against the yen to 83.42, from 83.32. It has gained 0.5 percent against the Japanese currency since the beginning of the year as the global recovery takes hold, damping demand for the safe-haven appeal of the yen. 

Yen Depreciates 

The yen weakened versus the U.S. dollar, Australian dollar and the British pound on signs the global economy is picking up. 

“While rates everywhere else are likely to go up, people don’t expect Japanese rates to follow,” Paul Robson, a senior foreign exchange strategist at Royal Bank of Scotland Plc in London, said. “The yen has just been caught out by rate spreads and reviving risk appetite with people looking through some of the weather distortions on payrolls and seeing that as a positive for the global environment.” 

Source: Bloomberg By Allison Bennett and Lucy Meakin 

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New Zealand Jobless Rate Climbs, Sending Currency Lower

New Zealand’s unemployment rate rose more than forecast in the fourth quarter, sending the local currency lower and reducing the case for the central bank to raise interest rates in coming months. 

The jobless rate increased to 6.8 percent from 6.4 percent three months earlier, Statistics New Zealand said today. The median estimate of 10 economists surveyed by Bloomberg News was for 6.5 percent. The New Zealand dollar fell to 77.41 U.S. cents at 1:11 p.m. in Wellington from 77.76 cents before the data. 

Rising unemployment, along with falling house prices, threaten to damp a projected rebound from the economy’s contraction in the third quarter. Central bank Governor Alan Bollard last month kept interest rates unchanged, saying it was prudent to keep borrowing costs low until growth strengthens. 

“It has changed our thinking about the timing of the Reserve Bank’s forward path,” said Craig Ebert, senior markets economists at Bank of New Zealand Ltd. in Wellington, who shifted his prediction for a rate increase to September from June. Rising unemployment shows the economy “struggled” in the final three months of the year, Ebert added, seeing a risk of a second straight drop in gross domestic product. 

House prices fell in December for the third time in four months, according to an index published by the Real Estate Institute on Jan. 18. A net 21 percent of companies surveyed last quarter by the New Zealand Institute of Economic Research said that profits declined, the Wellington-based research group reported on Jan. 11. 

Benchmark Rate 

Bollard kept the official cash rate at 3 percent on Jan. 27. Five of 12 economists surveyed by Bloomberg last month, including Ebert, forecast a rate increase in June. Seven predicted the first move will be in the third quarter. 

Gross domestic product unexpectedly shrank 0.2 percent in the third quarter. Bollard last week said he expects the economy avoided a recession by expanding in the three months through December. 

New Zealand’s government has weathered the economic deterioration, with its popularity at 55 percent compared with the main opposition Labour Party at 29 percent, according to a Roy Morgan Research poll of 1,800 voters last month. Prime Minister John Key yesterday called a general election for Nov. 26, saying the campaign will be about which party has a plan for jobs and income growth. 

Employment Falls 

Employment fell by 0.5 percent, or 11,000 jobs, from the third quarter, when it climbed a revised 1.1 percent, today’s report showed. Economists predicted a 0.2 percent increase. From a year earlier, employment rose 1.3 percent. 

Pike River Coal Co. in December fired 130 workers after an explosion that killed 29 miners and closed the mine forced the company to appoint administrators. Auckland City, the nation’s most populous municipality, fired 650 managers and workers in November after the amalgamation of eight councils into a single authority.

The labor force participation rate dropped to the lowest in seven quarters, to 67.9 percent, from a revised 68.3 percent three months earlier. The rate fell because about 17,000 more people said they were no longer employed or looking for work. The number of people unemployed rose 8,000 to 158,000. 

The results “indicate a further deterioration in the labor market,” Peter Gardiner, labor market statistics manager at Statistics New Zealand, said in a statement. “The labor market has struggled to gain momentum following the recent economic downturn.” 

Full-time employment increased by 5,000 jobs, or 0.3 percent, from the third quarter. Part-time employment declined 14,000, or 2.8 percent. Statistics New Zealand adjusts the full- and part-time employment figures separately, which means they may not add up to the total change in employment. 

Total actual hours worked per week rose for the fourth consecutive quarter, gaining 0.2 percent, today’s report showed. 

Source: Bloomberg By Tracy Withers 

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English Signals New Zealand Fiscal Tightening Lessens Need for Rate Rise

New Zealand’s finance minister signaled that his government’s steps to shrink a fiscal deficit should reduce the need for monetary tightening by the central bank and ease pressure on nation’s exchange rate. 

“We are encouraged by the Reserve Bank governor who said a number of times that if fiscal policy carried more of the load then monetary policy wouldn’t have to carry as much,” Bill English, who also serves as deputy prime minister, said in an interview in his office in Wellington today. English added that the current exchange rate for the New Zealand dollar is an “impediment” for the country’s exports. 

Traders today scaled back bets on the Reserve Bank of New Zealand to raise interest rates this year after a government report showed fewer jobs than forecast were generated in the fourth quarter. The one-year swap rate, a fixed payment made to receive floating rates, which is sensitive to interest-rate expectations, tumbled the most seven weeks, to 3.22 percent, compared with the RBNZ’s benchmark official cash rate of 3 percent. 

New Zealand’s dollar has in the past half decade averaged a rate that’s effectively the strongest in three decades, English said. It’s traded at a mean of 69.30 U.S. cents over the past five years, compared with 57.19 cents the previous five. After his remarks were published, the currency known as the kiwi extended declines, trading at 77.13 cents as of 5:40 a.m. in London from 77.33 cents yesterday in New York. 

Rising Unemployment 

The jobless rate increased to 6.8 percent from 6.4 percent three months earlier, increasing the risk that the economy shrank for a second straight quarter in October to December. The median estimate of 10 economists surveyed by Bloomberg News was for a 6.5 percent rate. 

“We can’t see a tightening before the September policy statement meeting and remain alert for the prospect that the next move in the cash rate could be down,” Darren Gibbs, chief New Zealand economist at Deutsche Bank AG in Auckland, said in an e-mailed note after the employment report. “Based on the indicators available to date, we think that the economy probably contracted 0.4 percent in the fourth quarter.” 

English said it will be up to “statisticians” to decide whether there was a recession. Growth has been hurt by losses in construction and retailing jobs as households start to boost saving, he said. 

Warehouse Group Ltd., the nation’s largest discount retailer, last month forecast a decline in first-half profit after sales dropped. 

Shift to Savings 

“Consumers clearly remain even more focused than we predicted on strengthening household balance sheets,” Warehouse Chief Executive Officer Ian Morrice said in a statement. 

The move to boost household savings and shrink the public deficit will help the economy shift away from reliance on consumers and the government, added English, 49, a former chief of the ruling party when it was in opposition. 

Prime Minister John Key last week pledged to cut new spending this year, helping return the budget to surplus a year earlier than previously forecast. The government expects to achieve a surplus in the year ending June 30, 2015, Key said. 

“What we need to do is ensure that government behavior isn’t putting upward pressure on interest or exchange rates,” English said in the interview in his office, in a wing of the New Zealand parliament known as the beehive for its appearance. 

Looking at prospects for the kiwi in 2011, he said “it’s hard to see the general pressures that would push it up.” 

Bollard’s Take 

RBNZ Governor Alan Bollard told reporters on Jan. 28 that a faster elimination of the deficit “means less stimulus in the economy. And all other things being equal, which they never are, it means that one would be able to delay monetary policy tightening longer than would otherwise have been the case.” 

New Zealand’s government has weathered the economic deterioration, with its popularity at 55 percent compared with the main opposition Labour Party at 29 percent, according to a Roy Morgan Research poll of 1,800 voters last month. Key yesterday called a general election for Nov. 26, saying the campaign will be about which party has a plan for jobs and income growth. 

English indicated the biggest dangers for New Zealand include a slowdown in China, house-price bubble bursting in Australia or a spreading in the European sovereign-debt crisis. 

“Commodity prices are starting to look like a spike,” he added. “If they can go up as sharply as they have in the last few months, they can come down.” 

Dairy Rally 

Milk prices are soaring at a 7 percent monthly pace on top of an already “high” level, English said. Dairy products make up almost a quarter of the nation’s exports and Auckland-based Fonterra Cooperative Group Ltd. is the world’s largest exporter of the goods. English also cited crude oil costs approaching $100 a barrel.

Commenting on wool, English signaled he wouldn’t oppose higher prices. Asked about an effort by farmers to organize a cartel, English welcomed the initiative while adding that the government won’t directly help it. 

“In a number of our main export sectors -- being dairy, meat and wool -- there are tense but constructive discussions going on about how to commit capital in the right way to take advantage of the positive opportunities,” said English, who took office in November 2008. “It’s great that they are working on that stuff. We encourage it, but we’re not going to direct them.” 

Source: Bloomberg By Tracy Withers

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