World Trade Source

8/02/2010

The South African rand and the Canadian dollar advanced versus the yen and the U.S. dollar as gains in stocks stoked demand for higher-yielding currencies.

The rand rose against all 16 of the most-traded currencies tracked by Bloomberg and the Canadian dollar strengthened for a second day as U.S. stock futures and European equities advanced. The pound weakened against the dollar and the euro amid deepening concern this year’s U.K. election will end in stalemate. The euro reversed declines after trading at the lowest level in eight months against the dollar last week as European finance ministers said during a weekend meeting they will help ensure Greece tackles its deficit.

“It’s a relief rally after a weekend when nothing went wrong,” said Simon Derrick, chief currency strategist at BNY Mellon Corp. in London. For sterling, “the thing that is causing concern is the possibility of a hung parliament that brings a lack of certainty about how you deal with the deficit,” he said.

The rand climbed 0.6 percent to 7.77378 per dollar at 10:02 a.m. in London, and rose 1.2 percent to 11.560 yen. The Canadian currency traded at C$1.0679 per U.S. dollar. The euro rose 0.1 percent to $1.3701.

The rand advanced as stocks and commodities gained, boosting speculation the recovery from last year’s recession will fan demand for the currencies of countries with higher interest rates. South Africa’s benchmark rate is 7 percent, compared with the Federal Reserve’s target rate for overnight loans between banks of between zero and 0.25 percent.

U.K. Election

The pound weakened 0.6 percent to 87.91 pence per euro and fell 0.4 percent to $1.5586, after an ICM Ltd. survey for the Sunday Telegraph newspaper showed the U.K. opposition Conservative party’s lead over Prime Minister Gordon Brown’s Labour party narrowed to nine points, suggesting no party will win a majority in the election that must be held by June.

Simon Johnson, a former International Monetary Fund chief economist, said the U.K. should be added to the same category of countries as Greece and Spain, whose debt ratings are under pressure amid rising debt burdens, the British Broadcasting Corp. reported on its Web site, citing an interview.

The euro snapped three days of declines after French Finance Minister Christine Lagarde said at the Group of Seven meeting at the weekend that Greece’s budget deficit will be “managed” and finance ministers pledged to press ahead with economic stimulus measures.

Euro Declines

The euro fell 1.3 percent against the dollar last week, its fourth consecutive weekly decline, as the cost to insure Greek debt climbed to a record amid concern the country will struggle to cut a deficit that is the biggest in the European Union.

Traders raised bets to the highest level in more than a decade that Europe’s currency will weaken against the dollar, data from the Washington-based Commodity Futures Trading Commission showed on Feb. 5. That may signal it’s poised to rally, according to Commerzbank AG.

“If one does not expect any renewed qualitatively bad news, one has to concede that in view of the extreme positioning the risk in euro-dollar is on the upside again,” said Ulrich Leuchtmann, head of currency strategy in Frankfurt.

The difference in the number of wagers by hedge funds and other large speculators on a drop in the euro compared with those on a gain -- so-called net shorts -- was 43,741, on Feb. 2, the most since the euro’s debut in 1999, compared with net shorts of 39,539 a week earlier.

The 14-day relative strength index of the euro versus the dollar was at 26.05 today, staying below 30 for a third straight day, according to data compiled by Bloomberg, a sign the currency may be poised to change direction.