The Dollar Index advanced from an almost one-month low as a rally in equities worldwide signaled sustained investor appetite for risk and demand for U.S. assets.
Japan’s currency depreciated to more than 100 per dollar after climbing to the strongest in three weeks yesterday. Australia’s dollar declined versus all of its 16 major counterparts after the nation’s central bank said the inflation outlook provided some scope for further monetary easing. South Africa’s rand strengthened for a second day against the U.S. currency amid demand for higher-yielding assets. The trade deficit in the U.S. widened.
“If you look at equity markets today in Europe and overnight, it’s basically green,” Geoffrey Yu, a senior currency strategist at UBS AG in London, said in a phone interview. “In a positive-risk environment right now, clearly the dollar is responding favorably.”
The dollar gained 0.2% to $1.3049 per euro at 10:23 a.m. New York time. The yen fell 0.7% to 100.25 per dollar. It appreciated to 98.87 yesterday, the strongest since May 9. Japan’s currency declined 0.6% to 130.81 per euro.
The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against currencies of six U.S. trading partners, rose 0.3% to 82.928 after adding as much as 0.4%. The gauge depreciated 0.9% yesterday, touching the lowest level since May 9.
The widening of the U.S. trade deficit in April to $40.3 billion from a more than three year low reflected a rebound in imports of consumer goods and business equipment that eases concern about the degree of slowing in economic growth.
The MSCI Asia Pacific Index of shares gained 1% and the Stoxx Europe 600 Index advanced 0.5%, while the Standard & Poor’s 500 Index gained 0.1%.
Japan’s currency weakened against the majority of its most- traded peers. Wages in the country rose by the most in a year in April, in a gain that supports Prime Minister Shinzo Abe’s campaign to reflate the world’s third-biggest economy after 15 years of falling prices.
“The market is giving back some of its recent moves, with the yen weakening,” said Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “The performance of the U.S. economy and Fed policy direction will be important for the yen.”
Japan’s currency will weaken toward 110 per dollar over the next 12 months, Hardman said.
The euro fell as much as 0.2% versus the dollar amid reports that Germany has secured French support to delay rules on direct bank aid from the euro area’s firewall fund, calling into question when the tool will be available, according to two European officials.
Euro-area finance ministers had aimed to reach political agreement this month on when and how the European Stability Mechanism could help banks so that the new program is ready next year when common supervision starts within the currency bloc.
“Euro has been on the defensive since headlines broke about ESM,” Daragh Maher, a London-based currency strategist at HSBC Holdings Plc., said in an e-mailed message.
JPMorgan Chase & Co.’s Group-of-Seven Volatility Index, based on currency option premiums, was little changed at 10.13% after reaching 10.24% yesterday and May 31, the highest level since Feb. 26.
The Aussie weakened as the central bank held its benchmark interest rate at a record-low 2.75%.
The exchange rate “remains high considering the decline in export prices that has taken place over the past year and a half,” Reserve Bank of Australia Governor Glenn Stevens said in a statement.
“The RBA continues to reiterate that the bias is still toward a lower cash rate, and they do not seem to be alarmed or disturbed by the decline in the Aussie,” said Roy Teo, a currency strategist at ABN Amro Bank NV in Singapore. “They have always tried to indirectly maneuver a lower exchange rate.”
Australia’s dollar fell 1.2% to 96.54 U.S. cents after jumping 2.1% yesterday.
The Aussie has declined 3.7% this year, the second- worst performer among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen posted the biggest drop, falling 11%, while the dollar gained 4.6% and the euro added 3.3%.
South Africa’s rand gained as the nation’s benchmark stock index rallied.
“Global market moves are mostly a reflection of thinking over the Fed,” John Cairns, a currency strategist at Rand Merchant Bank in Johannesburg, wrote in e-mailed comments. “The rand has been no exception.”
The rand appreciated 1% to 9.7215 per dollar after climbing 2.7% yesterday.
U.S. manufacturing unexpectedly contracted in May, data showed yesterday, damping speculation the Federal Reserve will reduce stimulus. The central bank is buying $85 billion of Treasury and mortgage bonds each month to put downward pressure on borrowing costs under its quantitative-easing stimulus program.