Yen, Dollar Drop Amid China Policy Easing, Progress on Greek Aid - BusinessWeek

February 19, 2012, 9:57 PM EST By Candice Zachariahs and Mariko Ishikawa

Feb. 20 (Bloomberg) -- The yen and dollar dropped against most major peers after the People’s Bank of China announced a cut to banks’ reserve requirements to spur growth, curbing demand for refuge assets.

The currencies of Australia and New Zealand, which count China among their largest export destinations, gained on prospects the move will also boost demand for commodities. The euro advanced for a third day against the greenback before European finance ministers meet today amid speculation they are nearing a deal for a second Greek aid package. The yen traded 0.4 percent from a six-month low versus the dollar as data showed Japan had its largest monthly trade deficit on record.

“The PBOC probably revealed some of its hand in that it still favors supporting growth rather than tackling inflation, so the market is probably expecting more easing,” said Mike Jones, a foreign-exchange strategist at Bank of New Zealand in Wellington. “If we do get the Greek deal on top of that, it’s likely to provide an additional risk kicker.”

The yen fell 0.5 percent to 105.04 per euro at 11:28 a.m. in Tokyo after touching 105.75, the weakest since Nov. 14. It slid as low as 79.89 per dollar, the least since Aug. 4, before trading little changed at 79.51 from the Feb. 17 close in New York. The dollar lost 0.5 percent to $1.3211 per euro.

Australia’s currency rose 0.7 percent to $1.0778 and New Zealand’s gained 1 percent to 84.07 U.S. cents.

The proportion of cash that lenders in China must set aside will fall half a percentage point from Feb. 24, the central bank said on Feb. 18 on its website. Standard Chartered Plc forecasts at least three more reductions this year, while HSBC Holdings Plc sees a minimum of two.

The MSCI Asia Pacific Index of stocks climbed 1.2 percent.

Finance Ministers’ Meeting

The euro gained against 11 of its 16 major peers before euro-area finance ministers meet in Brussels to try and close in on a 130 billion-euro ($172 billion) Greek bailout. Talks on Greece’s second aid package in two years will aim to reconcile demands made on Greek politicians, a debt swap among private creditors, the role of the European Central Bank and concerns the measures won’t bear fruit.

“I think the market is cautiously optimistic in terms of what they expect out of Europe this week,” said Thomas Averill, managing director in Sydney at Rochford Capital, a currency and interest-rate risk-management company. “There will be a support for the euro today.”

German Chancellor Angela Merkel, Greek Prime Minister Lucas Papademos and Italian Prime Minister Mario Monti on Feb. 17 expressed confidence that ministers will resolve open questions. Should they fail to back the bailout at the Brussels meeting, the issue could be pushed to the next European Union summit on March 1.

Japan Trade

The yen dropped against all bar three of its major peers. A government report showed Japan’s exports fell in January as the currency traded near a record high and amid weaker global demand.

The trade deficit widened to 1.48 trillion yen ($19 billion) and shipments dropped 9.3 percent from a year earlier, the Ministry of Finance said. The median estimate of economists surveyed by Bloomberg News was for a trade gap of 1.46 trillion yen and a 9.4 percent decline in exports.

The yen has weakened because of the Japanese trade report, China’s reserve-requirement cut and also hopes for second aid package for Greece, said Kumiko Gervaise, an analyst in Tokyo at Gaitame.com Research Institute Ltd., a unit of Japan’s largest online currency margin-trading company.

“Once the yen starts weakening like it has in the past few days, we don’t know how far it may go,” she said.

Japan’s currency slid 4 percent against the dollar and 5 percent versus the euro this month. The dollar has weakened 0.6 percent today, the biggest decliner among the 10 developed- nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen has lost 0.5 percent.

--Editors: Jonathan Annells, Naoto Hosoda

To contact the reporters on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net Mariko Ishikawa in Tokyo at mishikawa9@bloomberg.net

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net

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