Dollar Falls vs Yen, Mark on U.S. Stock Plunge, Japan Intervention Threat
Dollar Falls vs Yen, Mark on Plunging U.S. Stocks (Update1) (Updates rates.)
New York, Aug. 27 (Bloomberg) -- The dollar fell against the yen and mark, dragged down as U.S. stocks tumbled on concern Russia's financial crisis may hurt company profits and as a top Japanese official suggested Japan would sell dollars for yen.
The currencies of Canada, Australia, Norway and Mexico fell to record lows as commodity prices worldwide tumbled as Russia's troubles deepened.
In the U.S., the Dow Jones Industrial Average fell more than 4 percent. That hurt the dollar because global investors selling U.S. assets often convert their proceeds to other currencies. ''The Dow is getting hammered, and that's pulling down the dollar,'' said Charles Cheesman, assistant treasurer at Bank Austria.
The dollar fell to 141.80 yen, it's worst decline in 2 1/2 months, from 144.05 yen late yesterday in New York. It also dropped to 1.7957 marks from 1.8063 marks.
Some traders bought yen after Haruhiko Kuroda, director general of the Finance Ministry's International Bureau, said ''the yen is excessively weak and the dollar is too strong.'' The U.S. currency has fallen about 4 percent against the yen since reaching an eight-year high Aug. 11 after almost daily threats of dollar selling by Japanese authorities.
The mark fell against many major currencies including the Swiss franc and British pound on concern Russia's woes could hurt the German economy. Germany is Russia's biggest trading partner and lender and the crisis has driven some investors and traders away from German financial assets. ''People are unloading marks across the board,'' said Susan Stearns, a director of foreign exchange at Bank of Montreal. Financial and political problems in Russia are ''not good news for Germany or Europe as a whole.''
Russia
In Russia, the bellwether RTS stock index fell more than 13 percent to a record low, while the central bank halted trading between the ruble and dollar for a second day as demand for dollars exceeded supplies. The move paralyzed the banking system.
Some analysts are speculating President Boris Yeltsin, who sacked his government this week, may soon resign.
The dollar was also hurt against the yen amid sales of marks for yen. Many mark-yen trades go through the dollar, requiring traders to sell marks to buy dollars, then sell those dollars as they buy yen.
The mark fell to 78.915 yen, or 1.2 percent, from 79.835 yesterday. It also suffered its biggest loss against the Swiss franc in 13 months, falling to 0.8251 Swiss francs from 0.8335 francs. Sterling rose to 2.9740 marks from 2.9594 marks. Many traders view the U.K. and Switzerland as shielded from problems in Russia and other emerging markets. ''People are running to the pound and the Swiss franc is also benefiting,'' said Riccardo Gomes, head of foreign exchange at Republic National Bank.
While the dollar ordinarily benefits in times of global financial and political strife, it failed to gain against the yen because many investors who earned hefty returns on the dollar's 9 percent climb versus the yen this year sold the U.S. currency to compensate for losses in emerging markets, including Russia.
In recent months, many investors had borrowed yen at Japan's low lending rates, then sold those yen to finance other, high- yielding investments, often in risky emerging markets. ''A lot of hedge funds have been borrowing yen, selling for dollars, then funding their positions,'' said Dick Alford, currency strategist at Potomac Babson Inc., a money management firm. Many are now ''unwinding'' those positions, he said.
Commodity Currencies
The Canadian and Australian dollars declined to record lows amid plunging commodities prices. Efforts by both countries' central banks did little to reverse the declines. ''Any currency seen having a strong commodity link has been hit hard,'' said James Shugg, an economist at Westpac Banking Corp. in London.
The Bank of Canada raised its benchmark interest rate to 6 percent from 5 percent. Still, the currency fell to an all-time low of 63.05 U.S. cents less than a half hour after the rate rise was announced. Under ordinary circumstances, higher rates would make Canadian dollar deposits more alluring to global investors.
Meantime, the Australian dollar tumbled as low as 54.82 cents, from 56.59 cents yesterday. The U.S. Federal Reserve, acting on behalf of the Reserve Bank of Australia, bought the Australian currency, according to traders. It pared losses after the intervention, and was recently at 55.72 U.S. cents.
The Norwegian krone also hit a record low against the mark and the Mexican peso hit an all-time low versus the dollar amid falling commodities prices. Many investors are fleeing countries whose economies depend on commodities.
In other trading, the pound rose to $1.6495 from $1.6382. The dollar fell to 6.0250 French francs from 6.0565 francs and to 1.4820 Swiss francs from 1.5052 francs. The U.S. currency also fell to 1775.50 Italian lire from 1782.60 lire.
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