Money and Metals

The Associated Press reports on currencies. "The dollar hit a fresh high against the yen Thursday as investors sold the low-yielding Japanese currency for better returns off the greenback. The yen fell to 123.75 before recovering to 123.67, remaining above its December 2002 high of 123.13 yen against the dollar."

"The yen has come under new pressure after Bank of Japan Governor Toshihiko Fukui indicated that interest rates, currently at 0.25 percent, are not likely to rise at next month's meeting of the central bank."

"The 13-nation euro fell to $1.3387 in late New York trading from $1.3418 late Wednesday. The British pound dipped to $1.9922 from $1.9947."

"Also Thursday, encouraging U.S. economic data offset an unexpected rise in jobless claims to further boost the dollar. The Philadelphia Federal Reserve reported that regional manufacturing grew in June at the strongest rate since April 2005. The bank's index of regional manufacturing activity jumped to 18 from 4.2 in May."

"The Conference Board's May index of leading economic indicators predicted the U.S. economy will expand modestly in the coming months, and economists said jobs should continue to be plentiful, despite an unexpected surge in jobless claims last week."

"The dollar held onto gains made off Wednesday's soaring bond yields, which traded more narrowly Thursday. The yield on the benchmark 10-year Treasury rose to 5.17 percent from 5.15 late Wednesday.

The rising yields have fueled concerns about a U.S. interest-rate hike since passing 5 percent last week for the first time since last summer. Economists still predict that the Federal Reserve will leave rates unchanged when it meets next week."

"In other New York trading, the dollar bought 1.0759 Canadian dollars, up from 1.0662, and 1.2418 Swiss francs, rising from 1.2367."

From Bloomberg. "The New Zealand dollar may rise to a 22-year high as investors test the central bank's currency intervention policy and are attracted to the nation's higher- yielding assets. The currency yesterday rose to its highest since being allowed to trade freely in 1985, and above the level it reached before the central bank sold New Zealand dollars June 11, calling the gains 'unjustified.'"

"The currency has gained 23 percent against the U.S. dollar the past 12 months, as a record 8 percent benchmark rate lures investors to the country's debt."

"'It could test higher as the market tests the central bank out and sees if it will respond,' said Alan Ruskin, chief international strategist at RBS Greenwich Capital Markets Inc. in Greenwich, Connecticut. 'And the whole issue of yield is at the core of these gains.'"

"The currency bought 76.31 U.S. cents at 9:30 a.m. in Wellington from 76.18 cents in late Asian trading yesterday when it rose as high as 76.57 cents. The local dollar may exceed that level 'in the next couple of days,' Ruskin said. 'There's no clear top now.'"

"New Zealand rates are 2.75 percentage points more than the key U.S. borrowing cost and 7.5 percentage points higher than Japan's benchmark rate, the lowest of the major economies."

"The New Zealand dollar fell as much as 1.8 percent after the bank's June 11 sales, the first intervention announced by the central bank since it set up a fund for stabilizing the currency in 1988."

"New Zealand's dollar also gained against Japan's currency, trading at 94.42 yen, from 94.19 late in Asia yesterday. It reached 94.69 yen yesterday, the highest since October 1987. So-called carry trades, where investors borrow cheaply in yen to invest in higher-yielding assets elsewhere, have buoyed the New Zealand dollar 33 percent against the yen since the beginning of the year."

"Individual Japanese investors, who have set up 600,000 accounts to trade currency with borrowed yen, stepped up purchases of the New Zealand dollar after the Reserve Bank said it sold the currency. New Zealand government bonds were unchanged. The yield on the benchmark 10-year note remained steady at 6.78 percent, according to data compiled by Bloomberg."

From Reuters. "U.S. gold futures finished with moderate losses on Thursday after probing one-week lows, with speculative sellers able to push through technical support levels amid dollar strength and longer-dated U.S. interest rate increases, analysts said."

"'It is really all interest rate driven right now, which obviously means dollar driven. The euro looks like it might roll over and have the dollar strengthen again," said Frank McGhee, head precious metals trader at Integrated Brokerage Services."

"Most-active gold futures for August on the COMEX division of the New York Mercantile Exchange settled $5.80 lower at $654.20 an ounce, up from the session low of $650.50, a level dating back to June 14, though down from the $659.50 top. On Tuesday, it set a $665.80 high, last seen on June 8."

"'The fundamental point is that we've had a true realignment of interest rates with the (U.S. Treasury) 10-year note (yield) between 5.10 and 5.25 percent. That puts a very significant downward pressure on the euro, upward pressure on the dollar, which is very negative for gold,' said McGhee."

"Patrick Fearon, precious metals analyst at A.G. Edwards & Sons said a dramatic rise in longer yields at some point could prolong the housing slump, complicate things in the auto sector, weigh on investment and consumer spending, which, added together, would eventually bring down inflation."

"At the same time, analysts said a clear technical pattern set up a more vulnerable outlook for gold, though it currently remained in its $650 to $665 per ounce consolidation range. McGhee explained that gold's breakdown on Thursday, before extending this week's rally up to the $670 upside channel target, made it vulnerable to more selling."

'"Right now we're hanging in limbo. If we hold the $648 to $650 range we've got a little bit of technical support that can take us back to test the $665 to $668 area,' he said."

"If the dollar continues to rally against the euro, however, he said he sees a significant selling wave taking August gold futures down to the $635 to $640 area."

"Spot gold steadied around $651.30/652.80 an ounce late Thursday, off $654.50/656.0 an ounce on Wednesday, but well above the $647.50 session low dating back to June 14. On Tuesday, it set a 10-day high $661.40 an ounce. London banks set the afternoon gold fix at $650.50."

"COMEX July silver lost 16.0 cents to end at $13.09 an ounce, but slid to a low at $12.97 from the $13.2650 high. Spot silver fell to $13.08/13.12 an ounce at Thursday's end, down from $13.21/3.25 an ounce in late Wednesday trade. London silver was fixed at $13.17 an ounce."

"NYMEX July platinum lost $1.80 to $1,299.0 an ounce. Spot platinum ease to $1,288/1,292 an ounce. September palladium turned down $0.55 to $379.35 an ounce. Spot palladium edged up to $374.0/377.0."