Low Yen Bolsters Commodity Currencies


NEW YORK ( TheStreet) -- The global, coordinated selloff of the Japanese yen bolstered commodity currencies in U.S. trading Tuesday.

One of the primary beneficiaries of the yen suppression Tuesday was the Australian dollar -- via the carry trade. The Australian dollar was 1.2% stronger at 84.615 yen and 0.2% firmer at $1.02666. CurrencyShares Australian Dollar Trust ( FXA) was up 0.1% to $103.

"The carry trade is back, and pushing the Australian dollar back into record territory. With the G7 intervening to keep the Japanese yen down, the carry trade is pretty much a 'no brainer'," EverBank World Markets Vice President Chris Gaffney said. In carry trades, investors fund the buying of higher yielding currencies such as the Australian dollar after borrowing and selling lower yielding currencies such as the yen.

The carry trade has helped the Australian dollar hit a fresh high against the U.S. dollar recently and the New Zealand dollar shrug off losses. Other drivers have included expectations of more retail sales growth in Australia and New Zealand's first reported trade surplus in eight months in February as commodities achieved record high prices.

The New Zealand dollar was rising 1.6% at 62.29 yen and 0.7% at $0.75597. WisdomTree Dreyfus NZ Dollar Fund ( BNZ) was adding 0.5% to $23.08.

Gaffney thinks the massive repatriation of the Japanese yen that drove the currency higher after the earthquake and tsunami seems to be over.

The U.S. dollar was flat against the a basket of major currencies Tuesday following the release of dampening lackluster economic data.

The S&P Case-Shiller 20-city home price index showed a slightly milder-than-expected decrease of 3.1% in January, after a decline of 2.43% in December.

According to Briefing.com, economists were expecting a drop of 3.5% in January. The Conference Board said consumer confidence fell to a reading of 63.4 in March, which was lower than the reading of 65 that economists had been expecting, and far weaker than February's level of 72.
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Nevertheless, like its peers, the dollar firmed against the yen Tuesday.

"Overall, though, the dollar has continued to firm against the yen as the relative spreads between the U.S. and Japanese 2- and 10-year bond has moved in the dollar's favor since bottoming out in mid-March," said financial services firm Brown Brothers Harriman in a research report.

The U.S. dollar index was trading sideways at $76.28, while the dollar was gaining 0.9% against the yen at $82.419. The CurrencyShares Japanese Yen Trust ( FXY) was down 0.9% at $119.84. PowerShares DB US Dollar Index Bearish ( UDN) was down 0.1% to $28.02 and PowerShares DB US Dollar Index Bullish ( UUP) was flat at $21.88.

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-- Written by Andrea Tse in New York.

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