Loonie steady as traders await Bank of Canada decision
By William L. Watts and Carla Mozee, MarketWatch
NEW YORK (MarketWatch) — The dollar fell sharply versus the Japanese yen and the euro Wednesday on a round of apparent profit-taking as traders weighed the impact of rising U.S. yields and eyed a drop in European stocks and U.S. stock futures.
The dollar USDJPY -1.20% fell as low as 100.93 yen and traded in recent action at ¥101.31, down from around ¥102.31 late Monday.
The dollar during Monday’s session snapped a three-session losing streak against the yen.
The euro EURUSD +0.71% traded at $1.2930, up from $1.2852, and the British pound GBPUSD +0.55% was at $1.5112, up from $1.5034.
“What is confusing for many traders is why the euro, British pound and other high-beta currencies are performing so well when risk appetite is deteriorating,” said Kathy Lien, managing director of FX strategy at BK Asset Management.
“The answer is simple. Investors loaded up on long dollar positions (particularly against the yen) as stocks hit new highs and the unwind involves cutting that exposure,” Lien said.
The ICE dollar index DXY -0.72% , which measures the greenback’s performance against six other major currencies, fell to 83.648 in recent action from 84.266 Tuesday.
The WSJ Dollar Index XX:BUXX -0.77% , a gauge of the currency’s moves against a slightly wider basket, slid to 75.37 from Tuesday’s close at 75.84.
The dollar on Wednesday swiftly dropped against the yen as the yield on the benchmark 10-year Japanese government bond pushed further above 0.9%. Bank of Japan Gov. Haruhiko Kuroda said no financial system was immune to a possible crisis, and that the global economy hasn’t yet completely shaken off the effects of the global financial crisis.
His remarks came at a time of increased volatility in the market for Japanese government bonds following the launch of a massive monetary stimulus program by the Bank of Japan.
The yield on the 10-year JGB has tripled from its low of roughly 0.32% in early April, after the central bank announced large-scale bond buys to bolster economic growth and push inflation up to 2%. Bond prices move inversely to yields.
The 10-year JGB yield last week reached 1% for the first time in about a year, stoking worries that a jump in yields will raise borrowing costs for Japan. That move pushed the yen higher against the greenback and set off a violent downturn in yen-sensitive Japanese equities.
Bank of Canada decision due
The U.S. dollar was little changed versus its Canadian counterpart USDCAD -0.26% , trading at C$1.0388 as traders awaited a rate decision by the Bank of Canada at 10 a.m. Eastern. The central bank’s policy meeting, the last for Governor Mark Carney before he departs to take the helm of the Bank of England, isn’t expected to produce fireworks.
“We don’t expect any major changes to the current monetary-policy stance and the hawkish bias is likely to remain in place,” wrote Antje Praefcke, currency strategist at Commerzbank in Frankfurt. “However, considering the fact that inflation dropped to 0.4% in April, we wouldn’t be surprised to see the reference to ‘some modest withdrawal will likely be required’ watered down somewhat.”
Praefcke said further revisions to the bank’s outlook would come as a surprise after it trimmed forecasts in April. “Therefore, a softer wording of the BOC statement and a weaker economic outlook will immediately weigh on the [Canadian dollar] and push [the U.S. dollar/Canadian dollar pair] to C$1.0450,” though an attempt to push through that level is likely to fail at first, Praefcke said.
The Australian dollar AUDUSD +0.12% fell below 96 U.S. cents for the first time since October 2011, as the greenback benefited from better-than-expected reports on consumer confidence and U.S. home prices released Tuesday. The Aussie subsequently rebounded and traded at 96.20 U.S. cents in recent action, little changed from its level late Tuesday.
William L. Watts is MarketWatch's senior markets writer, based in New York. Follow him on Twitter @wlwatts.
Carla Mozee is a reporter for MarketWatch, based in Los Angeles. Follow her on Twitter @MWMozee.
