Yen advances with aussie as last year’s declines seen excessive

Asian Currencies

The Philippine peso, India’s rupee and Thailand’s baht led declines in Asian currencies this week as a gauge of China’s service industries fell to 54.6 in December from 56 in November. A number more than 50 indicates an expansion.

The peso depreciated 0.5% today to 44.64 per dollar after falling to 44.66, the weakest since Sept. 2. The rupee fell 0.5% this week to 62.155 per dollar, according to prices from local banks compiled by Bloomberg. The baht has dropped 0.9% this year to 33.01 per dollar.

Japan’s currency was poised to snap nine weeks of losses against the dollar, which saw it slide 18% last year amid unprecedented monetary stimulus from the Bank of Japan.

“We may pause a little bit in dollar-yen because of the seasonals there, as Japanese investors typically bring home some of their foreign holdings or foreign exposure mid-January through mid-February,” said Greg Anderson, head of global currency strategy at Bank of Montreal in New York. “I’d be a buyer of dollar-yen on a 104 handle,” he said, predicting further stimulus from the BOJ this year.

‘Thin Liquidity’

The yen has tumbled 16% in the past 12 months, the worst performer of the 10 developed-nation currencies tracked by Bloomberg Correlation Weighted Indexes. The Aussie has the second-biggest decline, at 13%, while the U.S. dollar gained 3.6%.

“The market, from a positioning perspective, is very short of yen and vulnerable to thin liquidity,” said Sue Trinh, a senior currency strategist at Royal Bank of Canada in Hong Kong. “The short-term risk for dollar-yen is for further profit- taking.”

The dollar erased a drop versus the yen after Bernanke said the U.S. is poised for faster growth. Bernanke cited economic progress on Dec. 18 when officials announced they would trim monthly bond purchases to $75 billion from $85 billion starting this month.

Policy makers will continue to reduce quantitative easing in $10 billion increments over the next seven meetings, ending the program in December 2014, according to the median estimate of economists surveyed by Bloomberg on Dec. 19.

The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major peers, added 0.1% to 1,025.82 after rising 0.3% yesterday.

‘Significant Divergence’

Economists predict the European Central Bank will keep interest rates unchanged at a record-low 0.25% when policy makers meet on Jan. 9. The euro will decline to $1.33 by March and $1.31 by mid-year, according to the median estimate in Bloomberg News surveys.

“Euro-dollar is going to weaken this year as the Federal Reserve winds down asset purchases, while we think the ECB is going to have to ease further,” said Vassili Serebriakov, a foreign-exchange strategist at BNP Paribas SA in New York. “That’s a significant divergence in U.S. and euro-zone rates, and that will be a key driver of euro-dollar weakness.”

Trading in over-the-counter foreign-exchange options totaled $43 billion, from $70 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 $10 billion, the largest share of trades at 23%. Options on the dollar-Chinese yuan rate totaled $7.1 billion, or 17%.

Dollar-yen options trading was 21% less than the average for the past five Fridays at a similar time in the day, according to Bloomberg analysis. Greenback-yuan options trading was 155% above average.

www.bloomberg.com

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