Dollar rallies as retail sales top forecasts to bolster outlook

‘Yen Correction’

“The objection to Iwata’s nomination is being used as an excuse for the yen correction,” said Daisaku Ueno, a senior foreign-exchange and fixed-income strategist at Mitsubishi UFJ Morgan Stanley Securities Co. in Tokyo.

Current Governor Masaaki Shirakawa is due to step down along with his two deputies on March 19. Iwata may be confirmed without backing from the DPJ if Prime Minister Shinzo Abe can secure the support of the smaller opposition parties.

The three-month dollar-yen risk reversal rate slid as low as minus 0.145%, the least since June 4, indicating increased demand for options that grant the right to buy Japan’s currency versus the greenback.

The yen has slumped 7.6% this year, the worst performer of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes amid expectations a new BOJ leadership will boost cash infusions. The dollar rose 3.1% against their developed-market peers on signs the U.S. recovery is gathering pace.

Recovery Signs

The euro fell for a second day against the dollar after Italian borrowing costs increased at a debt sale amid concern a political deadlock in the country will derail plans to implement austerity measures.

Italy sold 3.32 billion euros of a 2015 note at 2.48%, up from the 2.30% at the prior auction on Feb. 13. The Treasury sold 2 billion euros of securities maturing in 2028 at 4.90% versus with 4.805% when the bonds were sold via banks on Jan. 15.

New Zealand’s dollar dropped for a second day versus the U.S. currency after Finance Minister Bill English said yesterday the dry weather could hurt economic growth.

Drought declarations were extended to most of North Island last week, including the nation’s biggest milk-producing region. Food prices fell 0.3% last month after increasing 1.9% in January, official data showed today.

“The drought continues to worsen on an almost daily basis, placing downward pressure on the New Zealand dollar,” said Mike Jones, a currency strategist at Bank of New Zealand in Wellington. “There’s no doubt that growth in the first half of this year will be weaker as a result of the drought.”

The so-called kiwi weakened 0.3% to 82.43 U.S. cents after declining to 81.88 cents on March 8, the lowest level since Dec. 28.

Bloomberg News

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