Thursday, July 31, 2008

Dollar Advances to One-Month High as U.S. Companies Add Jobs

Dollar Advances to One-Month High as U.S. Companies Add Jobs

July 30 (Bloomberg) -- The dollar rose to a one-month high versus the euro and the yen after a private report showed U.S. companies unexpectedly added jobs this month.

The greenback also gained as a decline in crude oil eased concern elevated fuel costs will erode consumer spending. New Zealand's dollar dropped against all of the other major currencies except the Australian dollar after Reserve Bank Governor Alan Bollard said slowing economic growth will curb inflation in the next two years.

``It's premature to say employment destruction has hit bottom, but today is a good sign,'' said Mike Moran, a senior currency strategist at Standard Chartered in New York. ``In conjunction with a pullback in oil prices recently, it certainly contributed to the dollar's recovery.''

The dollar increased 0.4 percent to $1.5524 per euro at 9:49 a.m. in New York, from $1.5588 yesterday. It touched $1.5522, the strongest level since June 24. It may advance to $1.5460, Moran said. The U.S. currency rose 0.2 percent to 108.30 yen, from 108.11. It touched 108.33, the highest since June 25. The euro fell 0.2 percent to 168.14 yen, from 168.53.

The Australian dollar declined 1 percent to 94.32 U.S. cents after a government report showed home-building approvals unexpectedly dropped in June for a second month. The Aussie decreased 0.9 percent to 102.08 yen.

Weaker Kiwi

New Zealand's dollar fell to a 10-month low against its U.S. counterpart after Bollard said in a speech in Auckland that ``weakness in the economy will be sufficient to bring inflation and inflation expectations down over the medium term.'' The kiwi dropped 1.1 percent to 73.23 U.S. cents after touching 73.16, the lowest level since Sept. 25.

The U.S. dollar strengthened versus the euro as ADP Employer Services reported that companies added 9,000 jobs in July after cutting a revised 77,000 positions in the previous month. The median forecast of 29 economists surveyed by Bloomberg News was for a reduction of 60,000 jobs.

Non-farm payrolls dropped by 75,000 this month following a decline of 62,000 in June, according to the median forecast in a separate Bloomberg survey. The Labor Department is scheduled to release its report Aug. 1.

Crude oil fell for a second day, declining as much as 0.8 percent to $121.25 a barrel on the New York Mercantile Exchange. It has dropped 17 percent from the record of $147.27 set on July 11. The euro-dollar exchange rate and oil have had a correlation of 0.9 in the past year, according to Bloomberg calculations based on the correlation of their value changes. A reading of 1 would mean they moved in lockstep.

`Starts to Align'

``Everything starts to align for the dollar,'' said Brian Dolan, chief currency strategist at, a unit of online currency trading firm Gain Capital in Bedminster, New Jersey. ``There's optimism that we're starting to see some stabilization in the U.S. economy. A slowing global economy will likely reduce global demand for commodities. It's another positive for the dollar.''

The Dollar Index, which tracks the greenback against the currencies of six U.S. trading partners, reached 73.493, the highest level since June 24.

The U.S. currency may rise further versus the yen as Japanese investors invest their summer bonuses in overseas assets offering higher yields, according to Daisaku Ueno, a senior economist and currency analyst in Tokyo at Nomura Securities Co., Japan's largest brokerage.

`Individual Money'

``Emerging markets are constantly attracting Japanese individual money,'' said Ueno. Japan's currency may weaken to 110 per dollar by year-end, he said.

Employees at private companies were paid summer bonuses in June and July totaling 14.8 trillion yen, according to Kazuyoshi Nakata, an economist in Tokyo at Mitsubishi UFJ Research & Consulting Co., a unit of Japan's largest publicly traded lender.

HSBC Investments will seek to raise 50 billion yen for a fund focused on Brazil's stocks tomorrow, while Nomura Asset Management will seek 60 billion yen for global stocks Aug. 1. Brazil's Bovespa Index, measured in yen, advanced 16 percent over the past 12 months, according to Bloomberg calculations. Japan's Nikkei 225 Stock Average fell 23 percent.

The Bank of Japan's target lending rate of 0.5 percent is the lowest among industrialized economies, making overseas assets more attractive to domestic investors.

Implied volatility on one-month dollar-yen options fell to 10.06 percent, from 10.73 percent a week earlier. Lower volatility may encourage carry trades, in which investors borrow in countries with low interest rates and buy assets where returns are higher.

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