The yen (FOREX:USDJPY) and Swiss franc (FOREX:USDCHF) weakened on increased speculation that U.S. lawmakers may be able to reach an agreement on increasing the nation’s debt ceiling and avoid a default, which reduced demand for haven assets.
Japan’s currency fell from the strongest level in eight weeks versus the dollar after a government report showed the country’s current-account surplus unexpectedly shrank to a record for an August. The yen failed to maintain a breach of its 200-day moving average, signaling further weakness. The rand rose against all of its 16 most-traded peers.
“You have a 200-day moving average that’s acting as a support level, which, if it can hold, means that the yen will weaken,” Douglas Borthwick, the head of foreign exchange at Chapdelaine & Co. in New York, said in a phone interview. “It’s very key in terms of who’s going to win the currency-weakness war.” Support is a chart level where orders may be clustered.
The yen declined 0.4% to 97.11 per dollar at 9:35 a.m. New York time after appreciating to 96.57, the strongest level since Aug. 12. Japan’s currency dropped 0.5% to 131.91 per euro after gaining 0.9% in the previous two days. The dollar was little changed at $1.3588 per euro.
The Japanese currency strengthened yesterday for the first time since November beyond its 200-day moving average versus the greenback. The technical indicator, which some currency traders see as a potential turning point, was at 96.68 yesterday.
The franc fell 0.2% to 90.46 centimes per dollar and weakened 0.3% to 1.2294 versus the euro.
The JPMorgan Global FX Volatility Index fell to 8.7%, the lowest level since May 9, versus an average of 9.37% for 2013.
U.S. Senate Democrats are planning a test vote before the end of this week on a measure that would grant President Barack Obama authority to raise the $16.7 trillion debt ceiling, probably for a year, unless two-thirds of both chambers of Congress disapprove.
That plan emerged as Gene Sperling, the director of Obama’s National Economic Council, opened another route toward at least a temporary resolution. He declined yesterday to rule out a short debt-limit extension while reiterating the administration’s preference for a longer-term resolution.
Dallas Federal Reserve Bank President Richard Fisher said yesterday the U.S. “cannot afford to default.” Fisher, who doesn’t vote on policy this year, said in Dallas that “I don’t think we will default, but it will come down to the wire.”
The yen may strengthen to 95 per dollar by year-end as attention shifts to when the Fed will reduce its $85 billion in monthly bond purchases and Japan refrains from announcing new monetary stimulus, according to Anezka Christovova, a foreign- exchange strategist at Credit Suisse Group AG in London. Japan’s currency will end 2013 at 101 per dollar, according to the median estimate in a Bloomberg survey.
“A lot of people in the market are looking at dollar-yen as one of the key ways to play the risks associated with the debt negotiations, so certainly the hope for a deal should be affecting” Christovova said. “If it is indeed right that we get an early deal, the near-term reaction should be dollar-yen higher.”
Japan had a 161.5 billion-yen ($1.7 billion) surplus in its current account in August, the Ministry of Finance said in Tokyo. Economists surveyed by Bloomberg News estimated the excess would be 520 billion yen.
The yen has tumbled 9.8% this year, the worst performer of 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar gained 2.2% and the euro rose 5.6%.
The rand climbed to almost a two-week high versus the dollar as stock-exchange data showed overseas investors boosted their holdings of the nation’s bonds by 592 million rand ($59.5 million) yesterday, a third day of inflows.
Foreign funds have bought 1.2 billion rand of the nation’s debt since a partial shutdown of the U.S. government began last week. South Africa depends on portfolio inflows to plug its current-account deficit and support the rand.
“One reason for the rand’s resilience remains the strong portfolio inflows,” John Cairns, a currency strategist at Rand Merchant Bank in Johannesburg, wrote in a note to clients. Foreign bond and equity purchases since the start of the shutdown are “equivalent to a monthly rate of around 10 billion rand, which is good but not brilliant” he said.
The rand jumped 0.6% to 9.9459 per dollar after appreciating to 9.9164, the strongest level since Sept. 25.
The South Korean won weakened for a second day on speculation its advance to an eight-month high spurred selling.
“The won entered a period of correction after a good run,” said Kim Dong Young, a currency dealer at Industrial Bank of Korea in Seoul. “We don’t expect a big sell-off as demand for the won will emerge, given that the appreciation trend is still in place.”
The currency fell 0.2% to close at 1,073.75 per dollar in Seoul.