The yen strengthened from almost a six-month low against the dollar as a decline in global equities spurred demand for the currency as a haven amid speculation its recent drop has been too rapid.
The U.S. currency rose against most of its 16 major peers on bets that a U.S. budget agreement will boost prospects for the Federal Reserve to start tapering its monetary stimulus. New Zealand’s dollar pared losses after the central bank stepped up signals it will start raising interest rates in the first half of next year as the economy strengthens. Australia’s dollar fell for the first time in five days before a report tomorrow forecast to show the unemployment rate climbed to match the highest since 2009.
“There are a lot of risk-off plays that are causing the yen to appreciate,” Ravi Bharadwaj, a Boston-based senior market analyst at Western Union Business Solutions, a unit of Western Union Co., said in a phone interview. “The empty Japanese economic calendar today has also added to the effect of the stock market on the yen.”
The yen rose 0.3% to 102.52 per dollar at 3:18 p.m. New York time, after sliding to 103.39 yesterday, the weakest level since May 23. Japan’s currency added 0.1% to 141.33 per euro after depreciating to 142.17 yesterday, the least since October 2008. The 17-nation currency rose 0.2% to $1.3787, touching the strongest level since Oct. 29.
The Standard & Poor’s 500 Index declined 1%, while the Stoxx Europe 600 Index slipped 0.4%. The MSCI Asia Pacific Index of shares slid 0.6%.
The euro approached a key level of resistance at $1.3832, its 2013 high, according to Niall O’Connor, a New York-based technical analyst at JPMorgan Chase & Co. Resistance refers to an area on a chart where sell orders may be clustered.
“The euro has been on a remarkable upward trajectory this month, and that’s killed a lot of short positions on the euro,” Western Union’s Bharadwaj said. “Its current technical threshold will be the key litmus test to see whether or not investors are interested in actually going long the euro, or if they’ll cut back on this month’s profits.” A short position is a bet that an asset will decline in value.
Brazil’s real fell versus all 16 of its major peers after central bank President Alexandre Tombini said yesterday that the country’s 4.5% target for annual inflation is attainable. The currency dropped 1.5% to 2.3416 per dollar, after falling the most since Nov. 21.
New Zealand is set to become one of the first developed nations to begin raising borrowing costs as accelerating economic growth and a housing boom stoke price pressures even as it kept its target rate at a record low 2.5%. Given the outlook for faster inflation, “it is becoming unnecessary to maintain the current degree of monetary stimulus,” the central bank said.
“The bank will increase the official cash rate as needed in order to keep future average inflation near the 2% target midpoint,” Reserve Bank of New Zealand Governor Graeme Wheeler said in statement in Wellington. In October, he said increases “will likely be required” in 2014.
New Zealand’s currency slid 0.4% to 82.81 U.S. cents after weakening as much as 1.3%.
Australia’s dollar fell, snapping its longest winning stretch in seven weeks, before a report tomorrow that is forecast to show the nation’s unemployment rate rose. The Aussie depreciated 1% to 90.63 U.S. cents.
The yen’s 14-day relative strength index versus the euro was at 26, below the 30 level which some traders use to indicate an asset price has fallen too rapidly and may be poised to reverse course. Its RSI against the dollar was at 37.
“There might be some profit-taking, given the weakness of the Japanese stock market,” said Roberto Mialich, a senior currency strategist at UniCredit Bank AG in Milan. “These partial rebounds in the yen should be seen as a selling opportunity” and the currency may weaken to 110 per dollar next year, he said.
The yen has weakened 19.1% during the past year, the biggest decline among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro gained 9.9% and the dollar advanced 3%.
Speculation the Fed will trim its $85 billion a month of asset purchases as soon as its Dec. 17-18 meeting increased after U.S. budget negotiators yesterday unveiled an agreement to ease automatic spending cuts and reduce the deficit.
Senator Patty Murray, a Democrat, and Republican Representative Paul Ryan said the budget proposal avoids a government shutdown and helps the economy. The bipartisan accord plans to ease automatic spending cuts by about $63 billion over two years and reduce the deficit by $23 billion.
“This budget deal is encouraging news that removes the threat of another shutdown,” Richard Franulovich, the chief currency strategist for the northern hemisphere at Westpac Banking Corp. in New York, said in a phone interview.
Trading in over-the-counter foreign-exchange options totaled $52 billion, from $53 billion yesterday, according to data reported by U.S. banks to the Depository Trust Clearing Corp. and tracked by Bloomberg. Volume in options on the dollar- yen exchange rate amounted to $13.3 billion, the largest share of trades at 25%. Options on the dollar-yuan rate totaled $7.2 billion, or 14%.
Dollar-yen options trading was 3% less than the average for the past five Wednesdays at a similar time in the day, according to Bloomberg analysis. Dollar-yuan options trading was 36% above average.