The dollar dive under 100 yen after declining past the level for the first time in a month yesterday as investors weighed whether the U.S. recovery is robust enough for the Federal Reserve to scale back stimulus.
The Dollar Index pull back to an almost one-month low yesterday after a report displayed U.S. manufacturing contracted in May at the fastest pace in four years. Private data tomorrow may show the pace of hiring in the world’s biggest economy quickened. Demand for the yen was limited amid assumption that Japanese investors are shifting their money overseas.
“The QE exit hinges on the recovery in the labor market, so the jobs data this week would be key,” said Noriaki Murao, a managing director of the marketing group at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, referring to the Fed’s quantitative-easing program. “It’s too early to say the long-term weakening trend in the yen has ended.”
The dollar fetched 99.57 yen at 10:32 a.m. in Tokyo from 99.53 yesterday, when it drifted to 98.87, the least since May 9. The yen completed the highest four-day gain versus the greenback since July 2011. The euro exchanged at $1.3070 from $1.3076 yesterday, when it touched $1.3108, the strongest since May 9. Europe’s shared currency was unaltered at 130.15 yen.
The Aussie pushed back with 0.2 percent to 97.49 U.S. cents from yesterday, when it climbed 2.1 percent, the largest advance since November 2011. The currency relinquished to the worst point since October 2011 on May 29.
The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback versus currencies of six U.S. trading partners, was at 82.683 from 82.656 yesterday, when it declined to 82.428, a level unseen since May 9.
Payrolls Report
The Institute for Supply Management’s factory index retreated to 49, the worst reading since June 2009, from the prior month’s 50.7, the Tempe, Arizona-based group’s report showed yesterday. Fifty is the dividing line between growth and contraction.
ADP Research Institute will probably say tomorrow the pace of hiring in the U.S. quickened by 46,000 jobs to 165,000 in May from the previous month.
Nonfarm payrolls swelled by 165,000 jobs in April, more than forecast, and the jobless rate unexpectedly dropped to 7.5 percent, the Labor Department reported last month. It will probably say June 7 that employers added 168,000 workers in May.
The Fed is purchasing $85 billion of Treasury and mortgage bonds each month to put downward pressure on borrowing costs under its quantitative-easing stimulus strategy, which tends to debase the dollar.
Fed Stimulus
Fed Chairman Ben S. Bernanke told Congress on May 22 the U.S. central bank could decide at its next few meetings to taper purchases if it’s confident of sustained gains in the economy. At the same time, he said a premature tightening of monetary policy might imperil the economic recovery.
“Should the U.S. employment number disappoint, that could pour cold water on the argument for the Fed’s tapering of stimulus,” Yunosuke Ikeda, the head of foreign-exchange strategy at Nomura Securities Co. in Tokyo, wrote in a report today. “Paring bets for early stimulus exit has seen stocks gain, helping the Aussie and cross-yen in risk-on trade.”
GPIF Allocations
Demand for the yen was limited after the Nikkei newspaper reported Japan’s Government Pension Investment Fund, which oversees about 108 trillion yen ($1.08 trillion) in assets, may diversify away from Japanese government bonds. The Cabinet secretariat will set up a panel this month to make recommendations to GPIF on asset allocations, which may take place in one to two years, the Nikkei said without attribution.
The fund’s President Takahiro Mitani said in a Bloomberg interview in February the world’s biggest manager of retirement savings would begin talks in April about reducing its 67 percent target allocation to domestic bonds.
“GPIF’s new asset allocation plan may not be adopted for another two years, so it’s a little surprising the dollar was bought back on the news,” said Bank of Tokyo-Mitsubishi UFJ’s Murao.
Japanese investors became net buyers of Australian bonds in May for the first time in nine months, Westpac Banking Corp. (WBC) said. Sovereign investor support for Australian dollar bonds surged again last month, particularly from Asia, according to a Westpac research note.
Aussie, Lira
The Australian dollar’s one-month risk reversal rose to minus 2.035 percentage points, after dropping to minus 2.45 points on May 17, the lowest since June 19 and indicating increased demand for options that grant the right to sell the Aussie versus the greenback.
Turkey’s lira held a five-day drop on concern days of protest against Prime Minister Recep Tayyip Erdogan will undermine his efforts to overhaul the political system.
The lira was little changed at 1.8841 per dollar, after having weakened 2 percent in the previous five sessions.
