Dollar, Yen Weaken as RBA Rate Decision Boosts Demand for Yield

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The dollar and the yen weakened after Australia’s central bank unexpectedly halted its most aggressive round of interest-rate cuts, boosting demand for higher-yielding assets.

The U.S. and Japanese currencies also snapped two days of gains versus the euro as Asian shares pared losses and U.S. stock futures climbed, increasing confidence among investors to resume so-called carry trades. Currencies of economies with higher relative interest rates, such as Australia, New Zealand, China and the Philippines, all strengthened. Demand for the greenback waned after the World Bank said the worst of the global financial crisis has passed.

“Investors have no alternative but to look abroad because their domestic rates aren’t high,” said Akifumi Uchida, deputy general manager of the marketing unit in Tokyo at Sumitomo Trust & Banking Co., Japan’s fifth-largest bank. “Recently, some appear to be buying assets in Asia as the performance of those assets is relatively good.”

The dollar declined to $1.2634 per euro as of 7:51 a.m. in London from $1.2578 late in New York yesterday. The yen dropped to 123.40 per euro from 122.58. The U.S. currency traded at 97.66 yen from 97.45 yen.

Australia’s currency rose 1.9 percent to 64.19 U.S. cents and advanced 2.1 percent to 62.66 yen from late in New York yesterday. New Zealand’s dollar climbed 1.2 percent to 49.84 cents and added 1.4 percent to 48.66 yen. China’s yuan rose 0.3 percent to 14.27 yen and the Philippine peso climbed 0.4 percent to 2 yen.

From Bloomberg News.