Euro drops to 1-week low versus dollar as German data weaken

Recovery Path

Japan’s economy has returned to a recovery path, according to minutes of the central bank’s August meeting released today in Tokyo. The Bank of Japan unexpectedly increased its asset- purchase fund to 55 trillion yen ($710 billion) at its meeting last week.

The euro may rise against the yen to 104.81, its strongest level since May 4, if it doesn’t fall below a level of so-called support, technical analysts Karen Jones and Axel Rudolph of Commerzbank AG in London wrote in a report today.

New Zealand’s dollar declined on speculation that disagreement among the euro region’s leaders is curbing prospects for growth, damping demand for higher-yielding assets. The so-called kiwi fell 1 percent to 82.06 U.S. cents, posting its biggest drop since July 23.

Australia’s dollar dropped against all except two of its 16 major peers as China’s Economic Information Daily said downward pressure on the Asian nation’s economy was increasing.

Europe’s debt problems are still at a “high risk” phase and the global economic recovery is “bumpy,” the newspaper cited Zhang Ping, head of the National Development and Reform Commission, as saying.

The so-called Aussie fell 0.5 percent to $1.0407, and declined 0.9 percent to 80.98 yen.

Changing Outlook

From the end of 2008 through July, no major currency rose as much as Australia’s dollar, thanks to booming shipments of iron ore and other commodities to China. Since then, it’s the worst performer as the engine of world growth slows.

The Aussie depreciated 1.5 percent in the past month, the second-biggest decline among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. Traders are betting Australia’s central bank will cut interest rates to boost growth, dragging down the currency even though the Standard & Poor’s GSCI Index of commodities has risen almost 20 percent from its low this year in June.

“The Australian dollar is very expensive from whichever metrics you look at,” Dagmar Dvorak, a director of fixed-income and currencies in London at Baring Asset Management, which oversees $50 billion, said in an interview on Sept. 20. “When a currency overvaluation is that extreme, you have to question what could be a trigger that stops it. For the Aussie, it’s the economic slowdown in China and falling commodity prices.”

German Confidence

The Ifo institute said its business climate index, based on a survey of 7,000 executives, dropped to 101.4 from 102.3 in August. That’s the lowest reading since February 2010. Economists predicted an increase to 102.5, a Bloomberg News survey showed.

Merkel and Hollande, meeting on Sept. 22 to mark Franco- German reconciliation after World War II, failed to mask their differences on a planned banking union meant to contain the debt crisis. “The earlier, the better,” Hollande told reporters in the German town of Asperg. Merkel said there’s no point doing something fast if it then doesn’t work.

Earlier optimism that European leaders were making progress on containing the debt crisis saw the euro rise as high as $1.3172 on Sept. 17, the strongest since May 4.

Bloomberg News

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