CURRENCIES: Dollar, Yen Rise As Stocks, Commodities Tumble

Mon, Aug 17 2009, 16:21 GMT
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CURRENCIES: Dollar, Yen Rise As Stocks, Commodities Tumble

By William L. Watts

Both the dollar and the Japanese yen got bid higher on safe-haven appeal Monday as currency traders digested a weaker-than-expected rebound in Japan's economy and a steep fall overnight in Chinese shares.

Chinese stocks suffered their worst plunge since November, hammered by falling commodity prices and concerns over liquidity-tightening measures. The Shanghai Composite Index dropped 5.8% to 2,830.63, as Shenzhen's main share index plunged 6.6%

The overnight sell-off in Asian equities "dragged all of the major currency pairs lower, but this morning's better-than-expected U.S. data should ease safe haven flows into the U.S. dollar," said Kathy Lien, director of currency research at Global Forex Trading.

Lien was referring to the Federal Reserve Bank of New York, which reported that the Empire State index rose to 12.1 from negative 0.6 in July. It marked the first positive reading since April 2008 and was the highest showing for this gauge tracking manufacturing activity in the New York region since November 2007.

The dollar index (DXY), which measures the U.S. unit against a basket of six major currencies, rose to 79.369, up from 78.906 late Friday.

Japan's gross domestic product grew by 0.9% in the second quarter, slightly weaker than expected, compared to the first three months of the year amid increased exports and a rise in private spending. Worries remained about business spending, analysts said, which dropped for a fifth consecutive quarter as Japanese companies delayed capital expenditures on new plants and equipment

"The yen has continued last week's pattern of outperforming the major currencies including the U.S. dollar," said strategists at Brown Brothers Harriman. The Japanese GDP data "failed to limit yen gains as markets focused on falling equity markets, particularly China's equity meltdown," they wrote.

The dollar fell to 94.25 yen, down from 94.86 yen in North American trading late Friday.

The euro fell to its lowest level against the Japanese currency in more than two weeks recently changing hands at 132.65 yen, a loss of 1.3% on the session. Japan's Nikkei 225 Average ended down 3.1%, although the GDP data meant that the world's second-largest economy pulled out of recession in the April-through-June quarter.
The euro traded at $1.4063, down from $1.4169 late Friday, and the British pound bought $1.6292, down from $1.6494.
Meanwhile, selling pressure also built on higher-yielding currencies, such as the Australian dollar.
In energy futures, the benchmark contract traded down more than 2%, breaking below the $66-a-barrel mark.
The Australian dollar fell 1.5% against the greenback to trade at 81.97 U.S. cents
"High-yielding commodity currencies will remain under selling pressure as global bond yields come down," wrote strategists at BNP Paribas

Bond yields had been driven higher by inflation expectations but are set to fall as output gaps, the difference between actual and potential economic growth, continue to rise, they wrote.

Subdued U.S. inflation data and indications from last week's University of Michigan consumer-confidence figures that consumers are reducing price expectations have weighed on bond yields, they said. Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary: http://www.djnewsplus.com/access/al?rnd=OSCeAQXZlb%2Bm%2F01WSAJ%2FWA%3D%3D. You can use this link on the day this article is published and the following day.

(END) Dow Jones Newswires
August 17, 2009 12:21 ET (16:21 GMT)
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