DANÇA COM CÂMBIOS

Dollar suffers as risk appetite returns
By Peter Garnham

A turbulent week on the currency markets pushed the dollar and yen lower as risk appetite made a tentative return.

This weighed on haven demand for both the US and Japanese currencies at the end of the week.

It was a different story early in the week as concerns over the eurozone debt crisis, and Spanish banks in particular, weighed on global equities and hit confidence. Those concerns were exacerbated by rising hostility between North and South Korea.

But world equities regained their poise from Wednesday. Analysts said there was a heightened belief that Asian economies and the US could decouple from the problems in Europe. “The theory of a decoupling of the rest of the world from the problems in the eurozone seems to be taking hold, following the theory frequently heard in 2008 of the emerging markets decoupling themselves from the recession of the industrialised world,” said Ulrich Leuchtmann, at Commerzbank.

He said the reasoning was clear: the exposure of the financial systems in Asia and the US to the stricken countries of the eurozone was small and economic effects were small as Asia, not Europe, was the engine of the global recovery.

“It makes no difference short-term whether the decoupling theory is correct or not,” said Mr Leuchtmann. “If that is the reason behind concerns being overcome, then the currencies that are considered to be high risk will benefit.”

Commodity-linked currencies, which are highly sensitive to the prospects for global growth, rallied sharply.

Over the week, the Australian dollar rose 1.9 per cent to $0.8481 against the US dollar, while the Canadian dollar gained 1.2 per cent to C$1.0467. The dollar dropped 0.4 per cent to $1.4528 against the pound.

The dollar did advance against the yen and the Swiss franc, which have benefited from haven demand driven by the bout of turbulence on global markets. Over the week, the dollar rose 1.1 per cent to Y91.01 against the yen and 0.3 per cent to SFr1.1529 against the Swiss franc.

The dollar also advanced against the euro as the fiscal problems in the eurozone continued to weigh on the single currency.

The euro dropped to a low of $1.2152 on Thursday, just above the four-year trough of $1.2142 it hit last week, after an article in the Financial Times said China’s State Administration of Foreign Exchange, which manages the country’s vast foreign exchange reserves, was concerned over its exposure to peripheral eurozone government debt. This raised speculation that China might be reviewing its policy of diversifying its reserves away from the dollar and into the euro, a big source of support for the single currency in recent years.

The euro staged a rally after China reiterated its commitment to investing in the eurozone. But analysts were unconvinced.

“It would be silly to think that recent events in the eurozone have not changed and won’t change China’s behaviour at all,” said Alan Ruskin at RBS. “No serious investor can be inured to the chilling events at the eurozone’s periphery and its repercussions for long-term confidence in the single currency.”

Over the week, the euro fell 1.7 per cent to $1.2361 against the dollar and dropped 2.1 per cent to £0.8509 against the pound.