By Candice Zachariahs & Kristine Aquino - Aug 21, 2013 12:49 AM PT
The dollar rose the most in a week against the yen as investors awaited the release of minutes from the Federal Reserve’s July meeting for signals on when policy makers may curtail monetary stimulus.
The U.S. currency strengthened for a third day against the Australian and New Zealand dollars amid speculation a potential reduction of the Fed’s bond purchases will cause funds to flow out of nations that offer higher yields. Indonesia’s rupiah slumped to a four-year low as emerging-market assets declined. The euro dropped for the first time in three days versus the dollar before reports on manufacturing and services tomorrow.
Aug. 21 (Bloomberg) -- Geoffrey Yu, senior currency strategist at UBS AG, talks about Bank of Japan stimulus, a delay in the planned increase of the consumption tax and the outlook for the yen and dollar. He spoke yesterday in London with Bloomberg's Niki O'Callaghan. (Source: Bloomberg)
“The minutes could refocus market attention back on the prospect of Fed tapering,” said Peter Dragicevich, a currency economist in Sydney at Commonwealth Bank of Australia (CBA), the nation’s largest lender. “That could see the U.S. dollar rebound over the next few days.”
The dollar rose 0.3 percent 97.53 yen at 8:43 a.m. London time, the biggest advance since Aug. 13. The U.S. currency rose 0.2 percent to $1.3391 per euro. The euro was little changed at 130.61 yen.
The Fed will publish today its July 30-31 meeting minutes that may offer clues on whether policy makers will start reducing their $85 billion of monthly bond purchases known as quantitative easing. The Federal Open Market Committee next gathers on Sept. 17-18 and will probably decide to reduce the program at that meeting, according to 65 percent of economists surveyed by Bloomberg News from Aug. 9-13.
‘Some Clarity’
The central bank has said it will keep benchmark rates near zero at least as long as unemployment is above 6.5 percent and inflation is no more than 2.5 percent.
“Market participants will be looking for some clarity and a possible timeline on the QE tapering plans,” BNP Paribas SA strategists Vassili Serebriakov and Daniel Katzive in New York wrote in a note to clients. “This should offer support to the U.S. dollar, although the risk to that view is that the minutes include the discussion of new rate tightening guidance, including a lower unemployment rate threshold.”
The dollar has strengthened 4.3 percent this year, according to Bloomberg Correlation Weighted Indexes that track 10 developed-market currencies. The yen slumped 8.4 percent and the euro advanced 6.1 percent.
‘Negative Stories’
The rupiah slid for a sixth day versus the dollar even after Bank Indonesia Deputy Governor Perry Warjiyo said yesterday the central bank will remain in the currency and bond markets to stabilize the currency.
“Most of the domestic negative stories have been priced in, but the impact of FOMC minutes is still a concern,” said Handy Yunianto, head of fixed-income research at PT Mandiri Sekuritas, a unit of nation’s largest lender. “The central bank is allowing rupiah weakness to reduce imports and improve the current account.”
The rupiah declined 1.1 percent to 10,808 per dollar, the weakest level since April 2009.
The Australian dollar slid 0.7 percent to 90.12 U.S. cents and the New Zealand currency fell 1 percent to 79.02 cents.
An index of activity in manufacturing and services in the euro area rose to 50.9 in August from 50.5 a month earlier, according to a Bloomberg News survey before the report tomorrow from London-based Markit Economics.
To contact the reporters on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net; Kristine Aquino in Singapore at kaquino1@bloomberg.net
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net
