Dollar Rises as Chinese Stocks, U.S. Orders Prompt Haven Demand

July 29 -- The dollar rose versus the euro for a second day as China’s stocks plunged the most in eight months and a report showed orders for U.S. durable goods fell last month, bolstering demand for the greenback as a safe haven.

The U.S. currency advanced versus the Australian dollar and South African rand as China led a decline in emerging-market stocks on speculation the government will curb inflows. The Swiss franc declined to the weakest level versus the euro this month after a central bank official said policy makers will halt any appreciation of the currency.

“With equities softer, risk currencies are coming off,” said Daragh Maher, deputy head of global foreign-exchange strategy in London at Calyon, the investment-banking unit of Credit Agricole SA. “Anything that suggests expectations for growth in China are lower today than yesterday is going to hit the risk currencies.”

The dollar advanced 0.4 percent to $1.4116 per euro at 8:34 a.m. in New York, from $1.4167 yesterday. It earlier traded at $1.4091, the strongest level since July 17. The yen traded at 133.95 against the euro, compared with 133.95. The dollar increased 0.3 percent to 94.86 yen from 94.55.

Australia’s currency fell 1 percent to 81.87 U.S. cents after China’s Shanghai Stock Exchange Composite Index dropped 5 percent, the most since Nov. 18. The Aussie touched 83.38 cents yesterday, the highest level since Sept. 29.

Weaker Rand

South Africa’s rand fell a fourth day, dropping 0.9 percent to 7.9312 per dollar. It touched 7.9488 earlier, the weakest level since July 20.

The franc declined as much as 0.2 percent to 1.5271 per euro, the weakest level since June 30, as Thomas Jordan, a Swiss National Bank governing board member, said in an article in the Swiss economic magazine Die Volkswirtschaft that policy makers will continue to intervene in the foreign-exchange market to prevent the currency from strengthening.

Orders for durable goods in the U.S. fell 2.5 percent in June, the first retreat in three months, the Commerce Department reported today in Washington. The median forecast of 73 economists surveyed by Bloomberg News was for a decrease of 0.6 percent.

Federal Reserve Bank of San Francisco President Janet Yellen said in a speech in Coeur d’Alene, Idaho, that the U.S. economy’s recovery is likely to be “painfully slow” as consumers spend less and save more. The U.S. is showing the “first solid signs” of emerging from recession, she said.

Japanese Investors

The yen was headed for a 1.6 advance versus the dollar in July on speculation Japanese investors will bring back funds from redemption payments as 18 billion euros ($25.5 billion) in European government bonds mature.

“Talk of sizeable Eurobond redemptions are weighing on the euro-yen,” said Sue Trinh, a senior currency strategist at RBC Capital Markets in Sydney.

South Korea’s won fell 0.3 percent to 1,239.95 against the dollar as the MSCI Asia Pacific Index of shares ended its longest winning streak in more than five years, falling 1.2 percent.

Bank of America Merrill Lynch Securities raised its forecasts for the euro against the dollar and the yen, citing rising purchases of the common currency by emerging market central banks seeking to they diversify their reserves.

The European currency will strengthen to $1.45 and 145 yen by September and $1.50 and 158 yen by year-end, strategists led by Steven Pearson in London wrote in a report yesterday. The bank previously forecast $1.32 and 139 yen for end-September and $1.38 and 152 yen for the end of the year.

‘Capital Inflows’

“Although the allocations of many investors to emerging markets are already at record levels relative to benchmark, we think their popularity as an investment destination will support growth at a pace sufficient to sustain strong capital inflows for perhaps another quarter or so,” Bank of America said. “In turn, this is likely to trigger another significant wave of reserve-manager flow diversification demand for euro-dollar.”

The 16-nation currency traded in July in a range of $1.3833 to yesterday’s high of $1.4304, the strongest level since June 3.