By James Ramage
The dollar dropped against currencies tied to large commodity
exporters on Friday after China moved to stimulate its economy,
spurring hopes for renewed demand in raw materials.
The Australian dollar rose 0.5% to US$0.8665 in late trade,
while the New Zealand dollar edged up 0.2% to US$0.7886. The U.S.
dollar dropped 0.6% against the Canadian dollar to C$1.1235, a
three-week low.
The price moves marked a reversal for the dollar, which has
gained against most currencies over the past several months as the
U.S. economy has shown improvement in contrast with many of its
rivals. Investors have been buying dollars and moving into U.S.
stocks and Treasurys in anticipation that the stronger economy
would lead the Federal Reserve to raise interest rates, increasing
returns for assets denominated in the greenback.
On Friday, the People's Bank of China cut its one-year benchmark
lending rate by 0.4 percentage point to 5.6%. The central bank also
lowered the guideline deposit rates and gave Chinese banks greater
flexibility in setting rates they offer to savers.
The PBOC trimmed rates in response to persistent signs of a
slowdown in the world's second-largest economy. Investors moved
into the currencies of Australia, New Zealand and Canada in the
belief that the rate cuts could lead to a recovery in China and
boost its demand for the oil, metals and agricultural commodities
these nations provide.
"It drives the idea that we have ongoing stimulus coming from
Japan, China and Europe that will stabilize the global growth
outlook," said Camilla Sutton, chief currency strategist at
Scotiabank. "These currencies are particularly vulnerable to the
global growth outlook, as they're exposed to commodities; anything
that supports that will support them."
The dollar rocketed against the euro after European Central Bank
President Mario Draghi pledged to garner support to expand asset
purchases in a manner that financial markets hope will include
sovereign debt from eurozone members. The euro fell against most
currencies, losing 1.2% against the dollar to $1.2393, its lowest
level in a week.
The eurozone has been locked in a battle with anemic growth and
extremely low inflation, which has weighed on the euro. The ECB has
lowered interest rates and started asset purchases, while the Fed
has ended its massive bond-buying program, also known as
quantitative easing or QE.
Mr. Draghi's comments reiterated his message the ECB is prepared
to explore other channels to boost consumer prices, giving
investors more impetus to re-establish bets against the common
currency, which had started to slip recently.
"It all says the ECB is moving closer to sovereign QE," said
Vassili Serebriakov, a currency strategist at BNP Paribas. "With
markets a little less short the euro, there's scope to add to
euro-funded risk trades," such as betting on a weaker euro against
the commodity currencies and higher-yielding currencies like the
Mexican peso.
The dollar weakened against the yen Friday after Finance
Minister Taro Aso expressed concern over rapid depreciation in the
Japanese currency. Japan has been making efforts to increase
inflation toward a 2% target, as well as lift growth, with little
success. The greenback slid 0.4% to ¥117.78.
Mr. Aso's comments were "the big mover, first touch highlighting
that the pace of depreciation in the yen is proving uncomfortable,"
Ms. Sutton said. "But that alone isn't enough to shift the downward
trend."
Write to James Ramage at james.ramage@wsj.com