Dollar falls as U.S. yields drop for second day

Canada Dollar

The loonie, as the Canadian dollar is known for the image of aquatic bird on the C$1 coin, rose 0.4% to C$1.0368 per U.S. dollar.

Trading in over-the-counter foreign-exchange options totaled $17 billion, compared with $19 billion on Sept. 6, according to data reported by U.S. banks to the Depository Trust Clearing Corp. and tracked by Bloomberg. Volume in options on the Australian-dollar versus U.S.-currency exchange rate amounted to $3.5 billion, the largest share of trades at 23%. Options on the U.S. dollar-yen rate totaled $3.2 billion, or 19%.

Aussie-U.S. dollar options trading was 142% more than the average for the past five Mondays at a similar time in the day, according to Bloomberg analysis. Greenback-yen options trading was abot the same as average.

Japan Economy

Japan’s gross domestic product rose an annualized 3.8% in the second quarter from the previous three months, compared with a preliminary estimate of 2.6%, the Cabinet Office said in Tokyo today. Japan’s capital, which staged the 1964 Summer Games, beat Madrid and Istanbul to win the 2020 host role, the International Olympic Committee said Sept. 7 in Buenos Aires.

Combined with gross domestic product data, the report added to signs Japanese Prime Minister Shinzo Abe’s package of fiscal and monetary policies are giving the nation momentum.

“There’s been a lot of talk about the Olympics, the Chinese trade numbers and the better growth data for Japan,” said Jane Foley, senior currency strategist at Rabobank International in London. “However, before we can expect the yen to hold a move above 100, we are going to need to see a bit more dollar strength.”

The yen will trade at 105 per dollar in 12 months, Foley said.

Fed View

The Fed will taper its monthly bond purchases to $75 billion from the current $85 billion pace at its Sept. 17-18 meeting, according to the median estimate of 34 economists surveyed by Bloomberg News on Sept. 6.

The U.S. central bank will keep purchases of mortgage- backed securities at the current $40 billion per month pace, while cutting Treasury bond buying to $35 billion per month, from $45 billion, economists said. Last month, analysts estimated the Fed would reduce purchases to $35 billion in MBS and $40 billion in Treasuries.

Yields on Treasury two-year notes declined to 0.43% after touching 0.53% on Sept. 6, the highest level since 2011.

U.S. payrolls rose by 169,000 last month, less than the 180,000 estimate in a Bloomberg survey, Labor Department figures showed on Sept. 6. That followed a revised 104,000 increase in July that was smaller than initially estimated.

The dollar weakened even as President Barack Obama intensified his campaign to persuade a reluctant American public to back military action against Syria and Bashar al-Assad threatened retaliation “direct and indirect” if the U.S. attacks.

“You could make the argument the dollar should do well on risk aversion,” BNP’s Serebriakov said. “But I think here it’s more about markets already having a positive bias on the currency and the potential for higher oil prices probably hurts the dollar more than its helps.”

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