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From Bloomberg: Dollar Drop on G20 Speculation

(Bloomberg) — The dollar weakened for the first time in three days against the euro on speculation Group-of-20 leaders this week will call for gains in other currencies to help reduce global trade imbalances.  The greenback fell versus 14 of the 16 major currencies after a spokesman for Canadian Prime Minister Stephen Harper said leaders meeting in Pittsburgh on Sept. 24-25 will discuss “a framework for balanced and sustainable growth.” New Zealand’s dollar rose toward a six-week high against the yen after a government report showed the current-account deficit shrank to the narrowest in more than four years.

“There’s talk that world leaders may seek to address the U.S. imbalances,” said Masashi Kurabe, head of currency sales and trading in Hong Kong at Bank of Tokyo-Mitsubishi UFJ Ltd., a unit of Japan’s biggest publicly traded bank. “This may lead to weakness in the dollar.”

The U.S. currency dropped to $1.4714 per euro as of 1:31 p.m. in Tokyo, from $1.4680 yesterday in New York. It declined to 91.75 yen from 91.93 yen and weakened to $1.6237 per pound from $1.6217. The yen was little changed at 135.01 versus the euro from 134.96.

New Zealand’s dollar strengthened 1.2 percent to 65.79 yen, after earlier climbing to 65.89 yen, the highest level since Aug. 10. The so-called kiwi rose 1.5 percent to 71.71 U.S. cents. Australia’s dollar advanced 0.7 percent to 86.93 cents.

Structural Reform

Policy makers need to promote a “sustained growth track and facilitate global adjustment, as well as structural reform which will need to be undertaken in both deficit and surplus countries,” Dimitri Soudas, a spokesman for Harper, told reporters yesterday in Ottawa.

The U.S. trade deficit widened in July and imports gained by a record 4.7 percent, the Commerce Department said in Washington on Sept. 10. The gap between imports and exports increased 16 percent, the most in more than a decade.

The Dollar Index, which the ICE uses to track the dollar against the currencies of six major U.S. trading partners including the euro and the yen, fell 0.3 percent to 76.537.

The U.S. currency also weakened as gains in Asian stocks spurred investors to buy higher-yielding assets.

The MSCI Asia-Pacific excluding Japan Index of shares climbed 0.7 percent. The Australian dollar-U.S. dollar exchange rate had a correlation of 0.98 with the MSCI in the past year, according to data compiled by Bloomberg. A reading of 1 would mean the two moved in lockstep. Japan’s financial markets were closed today for the second of three consecutive public holidays.

‘More Positive’

“Risk sentiment seems to be slightly more positive, with equity markets higher,” said Lee Wai Tuck, a foreign-exchange strategist at Forecast Pte in Singapore. “It’s dollar-selling” against major currencies, he said.

Benchmark interest rates are 0.1 percent in Japan and as low as zero in the U.S., compared with 2.5 percent in New Zealand and 3 percent in Australia, attracting investors to the South Pacific nations’ assets.

New Zealand’s dollar rose for a second day versus the yen after Statistics New Zealand said the current-account deficit shrank to NZ$10.61 billion ($7.57 billion) in the 12 months ended June 30, from NZ$14.57 billion in the year through March. The median estimate in a Bloomberg survey was for a NZ$13.3 billion shortfall.

The annual deficit was 5.9 percent of gross domestic product, less than the 7.4 percent forecast by economists, and the least since the period ended September 2004.

“That’s the best number since September 2004 in GDP terms — a significant improvement,” said Imre Speizer, a market strategist at Westpac Banking Corp. in Wellington. “Appetite for risk is pretty subdued and till we get out of the FOMC meeting it will be hard for the global rally to take another step up.”

Fed Meeting

Losses in the dollar may be limited before a Federal Reserve meeting at which policy makers may signal an exit from economic stimulus measures, increasing the allure of U.S. assets.

The Fed will keep its target rate for overnight loans at a range of zero to 0.25 percent at its two-day policy meeting starting today, according to all 93 economists surveyed by Bloomberg News. Chairman Ben S. Bernanke and his colleagues may discuss how to wind down purchases of mortgage-backed securities.

“We wait to see how much the Fed acknowledges the improvement in the data recently,” said John Horner, a currency strategist in Sydney at Deutsche Bank AG, the world’s largest foreign-exchange trader. “The risk is that dollar short positions get taken off prior to that event.” A short position is a bet an asset will decline.

The Conference Board said yesterday its gauge of the U.S. economic outlook for the next three to six months increased in August, rising 0.6 percent, after a revised 0.9 percent gain in July. The median forecast of economists surveyed by Bloomberg News was for a 0.7 percent advance. Full: