BLBG: Yen Strengthens as U.S. Payroll Concern Spurs Safety Demand
The yen rose against higher-yielding currencies including the New Zealand dollar and South Africa’s rand before a U.S. report economists said will show job cuts increased last month, spurring demand for safer assets.
The yen also strengthened versus 13 of the 16 major currencies after former Federal Reserve Chairman Paul Volcker said yesterday a full U.S. recovery is “years” away, damping optimism the global recession is almost over. Australia’s dollar climbed for a fifth day versus the U.S. currency after a government report showed the nation’s economy unexpectedly expanded last quarter.
“People are cutting short positions on the yen in a hurry before major economic events in the U.S., which may drive the market’s direction,” said Shoichi Handa, senior currency dealer in Tokyo at SBI Liquidity Markets Co., a unit of financier SBI Holdings Inc. “If the ADP report today contains a negative surprise, the yen may be bought actively.” A short position is a bet an asset will decline.
The yen rose 0.7 percent to 11.9596 per rand as of 6:01 a.m. in London from yesterday in New York. It gained 0.4 percent against New Zealand’s dollar to 62.63. Japan’s currency traded at 136.89 per euro from 136.97 yesterday, when it fell to 137.44, the weakest since Oct. 20.
The yen was at 95.61 per dollar from 95.76. The dollar bought $1.4320 per euro from $1.4303 yesterday, when it fell to $1.4331, the lowest since Dec. 29.
Japan’s 0.1 percent benchmark rate compares with 7.5 percent in South Africa, 3 percent in Australia, 2.5 percent in New Zealand and 1 percent in the euro region.
Payrolls Fall
The yen gained before the ADP Employer Services report, which may show U.S. companies cut 525,000 jobs in May, after reducing positions by 491,000 in April, according to a Bloomberg News Survey before the data is released today.
While “truly massive fiscal and monetary stimulus is at work, a full recovery will be a matter of years” for the U.S., Volcker said yesterday in New York. The world’s biggest economy faces “an unimaginable budget deficit as far as one can see,” Volcker said.
Australia’s dollar reversed an earlier decline after the Bureau of Statistics report showed the economy expanded last quarter, avoiding two consecutive quarters of contraction that are taken to signify a recession.
The economy grew 0.4 percent in the three months ended March 31, following a revised 0.6 percent contraction in the previous three months.
‘Outperformance’
“This will probably reinforce Aussie outperformance,” said Sue Trinh, senior currency strategist at RBC Capital Markets in Sydney. “Against the U.S. dollar, we still see a risk that the Australian currency hits 85 cents before we see any signs of peaking.”
The Australian currency gained 0.6 percent to 82.61 U.S. cents and rose 0.5 percent to 78.98 yen. It earlier advanced to 82.63 U.S. cents, the strongest level since Sept. 29.
The yen ended two days of losses versus the euro as a technical chart traders use to predict price changes signaled the Japanese currency’s 3.5 percent decline in the past five days was excessive.
Japan’s currency has dropped 4.2 percent against the euro this quarter and the dollar has fallen 7.4 percent versus the European currency.
“There’s some adjustment of positions or profit taking” on recent gains in the euro versus the yen, said Kyohei Morita, chief economist at Barclays Capital in Tokyo. “That may be the reason behind the yen appreciation.”
Relative Strength
The 10-day relative strength index on the yen versus the euro, a gauge used by traders to project trends, fell to 29.6 yesterday. A level below 30 signals the currency may have fallen too fast and is poised to rise.
The Dollar Index, used by the ICE to track the greenback against the euro, yen, pound, Swiss franc, Canadian dollar and Swedish krona, rose 0.1 percent to 78.456.
The Dollar Index fell for a fourth day yesterday after Russian President Dmitry Medvedev said a new supranational currency could lay the foundations for a future financial system. Medvedev has repeatedly called for creating regional reserve currencies to address the global financial crisis.
“Emerging markets are thinking that there are risks associated with the dollar, which will have some negative impact on the financial markets,” said Susumu Kato, chief economist in Tokyo at Calyon Securities, the investment banking unit of Credit Agricole SA. “This kind of talk will have negative implications for the dollar.”
Medvedev may discuss his proposal to create a new world currency when he meets counterparts from Brazil, India and China this month, Natalya Timakova, a spokeswoman for the president, told reporters yesterday. Medvedev first proposed seeking alternatives to the U.S. dollar as a reserve currency in March.
