Dollar gains on demand for riskier assets

Currency Forecast

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.

Rate Decision

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.

Fed Speculation

“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.

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