07 Apr 2009
April 7 (Bloomberg) -- The dollar may extend its advance against most major counterparts after declining U.S. stocks increased demand for the world's main reserve currency.The greenback rose for the first time in five days against the Canadian dollar yesterday after a Calyon Securities analyst said loan losses at banks will exceed levels from the Great Depression. The South African rand retreated from the strongest level versus the dollar since October. The yen fell against the euro before the Bank of Japan's policy meeting today.
"It's back to the dollar being a safe haven," said Alan Kabbani, a senior currency trader at Wachovia Corp. in Charlotte, North Carolina. "Every time we see some retracement in the equity markets, we see the dollar benefiting."
The dollar traded at $1.3414 against the euro at 6:07 a.m. in Tokyo, after appreciating 0.5 percent yesterday. The yen was at 135.45 per euro and 100.99 versus the greenback after touching five-month lows against the currencies. The euro will probably fall to 126 yen and $1.31 in the next two weeks, Kabbani said.
U.S. stocks fell for the first time in five days, sending the Standard & Poor's 500 Index down 0.8 percent. The Dow Jones Stoxx 600 Index of European shares slid 0.6 percent.
"I don't think this risk rally is building on a solid foundation," said Matthew Kassel, director of proprietary trading at ING Financial Markets LLC in New York. "We may see a pullback in risky assets."
Calyon on Banks
Mike Mayo, a bank analyst at Calyon, assigned an "underweight" rating to U.S. banks including Winston-Salem, North Carolina-based BB&T Corp. and Cincinnati's Fifth Third Bancorp. Losses on banks' non-mortgage loans such as credit-card debt will probably accelerate, he wrote in a report yesterday.
The Dollar Index, used by the ICE to track the greenback against the currencies of six major U.S. trading partners, increased 0.5 percent to 84.571 yesterday. The gauge dropped 2.9 percent in March.
The U.S. currency gained 0.7 percent yesterday against the Canadian dollar to C$1.2382 and 0.9 percent to 8.0230 Swedish kronor. Canada's currency advanced 1.3 percent versus the greenback in March and the krona rose 9.3 percent on speculation the global economic slump may be ending. South Africa's rand dropped 0.3 percent to 9.0823 yesterday after touching 8.9647, the strongest level since Oct. 14.
"The market bought risky assets aggressively in a short period, making it prone to a pullback," said Steven Englander, chief U.S. currency strategist at Barclays Capital in New York. "There's always prospect for reconsideration."
Japan's central bank may refrain from introducing new policy steps for the first time in seven months, economists said before today's policy meeting.
Japan's Target Rate
Governor Masaaki Shirakawa and his colleagues will keep the target lending rate at 0.1 percent, according to 25 of 26 economists surveyed by Bloomberg News before the bank's announcement today in Tokyo. The Bank of Japan has taken action every month since Lehman Brothers Holdings Inc.'s bankruptcy in September discouraged banks from lending.
Strategists at BNP Paribas, Bank of America-Merrill Lynch and Morgan Stanley advise investors to sell the Canadian dollar before the central bank's policy report due on April 23. Bank of Canada Governor Mark Carney will probably join Japanese, Swiss, U.K. and U.S. central bankers in printing money to support economic growth, according to the analysts.
Outlook for Loonie
Canada's dollar, known as the loonie, will decline to C$1.27 against the U.S. currency by July, according to the median forecast of 37 analysts in a Bloomberg survey.
Citigroup Inc., the world's fourth-biggest trader in foreign-exchange markets, said in a research report yesterday it will sell the euro against the dollar after the 16-nation currency approached a resistance level.
"We've come a long way in a short space of time," Tom Fitzpatrick, chief technical analyst at Citigroup in New York, said in an interview yesterday. The 76.4 percent level "is the one where the euro has a tendency to do an awful lot when it comes off highs and lows of moves."
The euro rose earlier yesterday as much as 0.7 percent to $1.3582, just below the $1.3591 level that marks the 76.4 percent retracement of the currency's slump from March 19 to March 30. Resistance is an area where orders to buy or sell a currency may be clustered.
The euro may fall as low as $1.3225 this week before moving higher against the greenback, Fitzpatrick said.
The Federal Reserve and four other central banks announced a currency swap arrangement that will give the U.S. central bank access to as much as $285 billion in euros, yen, British pounds and Swiss francs.
"Central banks continue to work together and are taking steps as appropriate to foster stability in global financial markets," the Fed said in a statement yesterday.
