Dollar Rises on Signs of Economic Momentum; Loonie Drop

New York (Oct 15)  A gauge of the dollar climbed for a second day as investors favored the U.S. on signs its economic momentum is set to outpace the country’s major peers.

The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major currencies, rose before the Federal Reserve releases its Beige Book on economic conditions. Norway’s krone weakened to a four-year record versus the dollar and Canada’s dollar set a five-year low as crude oil traded at the cheapest level since 2010.

“If the focus switches back to the U.S. domestic situation, rather than a weaker global picture, that favors a stronger dollar,” said Michael Sneyd, a foreign-exchange strategist at BNP Paribas SA in London. “The Canadian dollar is proving to be very sensitive to the decline in the oil price, which makes sense.”

The Bloomberg dollar index rose 0.1 percent to 1,069.13 at 7:12 a.m. New York time, adding to yesterday’s 0.3 percent advance. The dollar strengthened 0.1 percent to $1.2646 per euro, following an 0.7 percent rally yesterday that was the strongest since Oct. 3. The greenback climbed 0.1 percent to 107.20 yen. The euro was little changed at 135.56 yen.

The U.S. economy will expand 2.2 percent this year and 3 percent in 2015, according to Bloomberg News surveys. The euro area will grow 0.8 percent and 1.3, respectively, while Japan will gain 1 percent in 2014 and 1.2 percent next year, the surveys predict.

“The U.S. is in a much better place compared to its peers,” said Stan Shamu, a markets strategist in Melbourne at IG Australia, a unit of IG Group Holdings Plc. “The U.S. dollar will ultimately benefit.”

Technical Recession

Germany’s Economy Ministry yesterday cut its 2014 forecast to 1.2 percent from 1.8 percent, and reduced its estimate for next year to 1.3 percent from 2 percent. The ZEW Center for European Economic Research said its index of investor and analyst expectations slid for a 10th month. ZEW President Clemens Fuest said he doesn’t rule out a technical recession.

A report today confirmed annual German inflation, calculated using European Union harmonized methods, stayed at 0.8 percent in September.

The euro has dropped 0.8 percent in the past three months according to Bloomberg Correlation Weighted Indexes, which track 10 developed-nation currencies. The dollar is up 7.3 percent and the yen has gained 1.1 percent.

Krone, Oil

Norway’s krone and Canada’s dollar were the worst performers against the dollar among 31 major currencies tracked by Bloomberg as oil tumbled, hurting both nations’ largest export. Brent crude slid as much as 2 percent to $83.37 a barrel, the least since November 2010, after tumbling 4.3 percent yesterday.

“Renewed weakness in the Canadian dollar has been triggered by the ongoing selloff in the crude oil market,” Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London, wrote in an e-mailed note today. “If the lower price of crude oil is sustained, or if it declines further still reflecting more favorable demand and supply conditions, it clearly poses downside risks for currencies from net oil producers.”

The loonie, as the Canadian dollar is known for the image of the aquatic bird on the C$1 coin, depreciated to C$1.1375 per U.S. dollar, the weakest level since July 2009, before trading 0.6 percent lower at C$1.1367. Norway’s krone lost 0.8 percent to 6.6278 per dollar, after sliding 1.7 percent yesterday.

Source: Bloomberg