Dollar depressed, stocks cheer easy Fed

April 28, 2011

 US dollar at the bottom of the pile, alongside (clockwise from left) the Australian dollar, Singapore dollar, China’s yuan and Korean won. — Reuters pic

 

SYDNEY, April 28 — The dollar slumped to three-year lows today, pushing US crude oil to a 21/2-year high, while Asian stocks rose as investors bet that the easy US monetary policy will continue to drive money to riskier assets. The Bank of Japan (BOJ) is also expected to maintain its ultra-loose monetary policy later in the day and indicate its readiness to ease further if damage from last month’s earthquake proves bigger than expected.
Putting pressure on the BOJ to do more, latest data showed Japanese factory output fell at a record pace in March.
With the two major central banks keeping interest rates near zero, investors are set to continue using the dollar and yen as funding currencies to buy higher-yielding assets, commodities and equities.
“The reason for the dollar’s broad weakness is that market players think it makes sense to use the dollar to fund investment in various assets, since US interest rates are likely to stay low for a while,” said Daisuke Karakama, market economist at Mizuho Corporate Bank in Tokyo.
Japan’s Nikkei average  rose 1.3 per cent, while stocks elsewhere in Asia put on more than 1 per cent to hit a new three-year peak.
Trading volume in Japan’s stock markets, however, is expected to be thin as the Golden Week holidays loom and as investors awaited earnings from the likes of Panasonic Corp and Honda Motor due after the market close.
“If earnings continue to impress the market, the Nikkei may rise further,” said Makoto Kikuchi, chief executive officer at Myojo Asset Management.
Japanese markets will be shut tomorrow and will reopen on Monday, ahead of more holidays next week.
Also highlighting hefty demand for higher-yielding assets and exposure to fast-growing emerging Asian markets, Indonesia’s US$2.5 billion (RM7.5 billion) medium-term note offering this week was nearly three times oversubscribed, with half the issue snapped up by US investors.
The dollar index, which tracks its performance against a basket of major currencies, fell to as low as 72.878 — a level not seen since July 2008.
Dealers also said several central banks in Asia were spotted buying the greenback to check sharp gains in their currencies.
The euro rose to a 16-month high of US$1.4878, further spurred by stop-loss buying after a breach of option barriers around US$1.4800, while the Australian dollar touched a post-float high of US$1.0948.
In the commodities market, US crude scaled a 21/2-year peak of US$113.70 a barrel, and gold futures raced to a record high above US$1,530 an ounce. Copper gained nearly 2 per cent to around US$9,490 a tonne.
US Treasury yields were a touch lower, after having risen yesterday as the market made room for an upcoming seven-year supply. The two-year yield slipped 1.2 basis points to 0.6368 per cent. — Reuters