NEW YORK, April 26: The dollar stabilized on Friday, recovering some ground against major rivals in spite of a decline in US stocks as traders’ focus shifted increasingly to the impact of the new virus-borne ailment SARS.
Heading into next week, growing worries about SARS (Severe Acute Respiratory Syndrome) curtailing economic growth may weigh more heavily on a raft of currencies including the so-called commodity currencies, foreign exchange strategists said.
For the greenback, this could prove a mixed blessing.
There’s a chance you could have the dollar continuing to weaken against the euro and sterling, but strengthen versus the Canadian and Australian dollars and the Japanese yen, said Jana Butland, currency strategist with Fleet Global Markets in Boston.
Intraday, the single currency traded at a global session high of 132.94 yen, its strongest since May 1999, according to Reuters data, but closed off its session highs at 132.78.
Late Friday afternoon in New York, the dollar was trading at 120.16 yen, up 0.16 per cent. Against the Swiss franc, the dollar was flat at 1.3612 francs. Against the single European currency, the dollar was also virtually steady with the euro buying $1.1035.
Investment flows out of Japan have quickened in recent days, an effect that has exerted additional downward pressure on the yen, said Greg Anderson, senior foreign exchange economist at ABN-Amro Bank in Chicago.
Although Japan doesn’t have SARS ... it’s causing all kinds of problems. It’s only a matter of time before it takes a toll on the economy, he said.
The New Zealand central bank’s surprise rate cut this week, citing SARS as one motivation, was striking and could be the harbinger for a much broader phenomenon, Butland said.
If SARS starts impacting (monetary) policy in the commodity economies, leading to rate cuts, then that could weaken these currencies tremendously, said Butland. One of the main reasons the Canadian, Australian and New Zealand dollars have performed so strongly against their US counterpart so far this year has been the higher yields they offer, tempting fixed-income flows away from the United States.
In the US, following a weaker-than-expected 1.6 per cent first quarter gross domestic product reading Friday, which the dollar essentially weathered, traders will focus on some potentially market-moving economic reports next week. These include the Chicago Purchasing Managers Index, commonly seen as one of the precursors of the widely watched Institute for Supply Management report.—Reuters
