Bloomberg News

Yen Strengthens on Haven Demand as Dollar Slips After U.S. Data

August 26, 2014

The yen rose versus the dollar for the first time in seven days as investors sought haven assets before the presidents of Russia and Ukraine meet.

The greenback weakened against most of its 16 major peers as U.S. July durable goods orders excluding transportation fell. New Zealand’s dollar slid to the lowest in six months after the nation’s trade balance slipped into deficit while the euro touched an 11-month low against the dollar. Turkey’s lira gained on signs the central bank may pause monetary easing.

“Geopolitical risk continues to escalate,” said Michael Woolfolk, a global-markets strategist at Bank of New York Mellon in New York. “If you expect to see a further deterioration in conditions in Ukraine and northern Iraq, you’d want to be looking at these levels around 104 in dollar-yen to buy yen.”

The Japanese currency strengthened 0.1 percent to 103.93 per dollar as of 10:01 a.m. in New York after touching 104.49 yesterday, the weakest since Jan. 23. It added 0.1 percent to 137.15 per euro. Europe’s shared currency was little changed at $1.3199, up from an earlier low of $1.3179, a level not seen since Sept. 9.

New Zealand’s currency fell against most of its 16 major counterparts after statistics bureau data today showed the nation’s trade deficit in July was bigger than the median estimate of economists surveyed by Bloomberg.

Kiwi Weakness

“New Zealand’s July trade balance disappointed,” said Joseph Capurso, a Sydney-based currency strategist at Commonwealth Bank of Australia. “Downward pressure on the New Zealand dollar remains, particularly given speculation of RBNZ intervention,” Capurso said in reference to the Reserve Bank of New Zealand.

New Zealand’s dollar was little changed at 83.42 U.S. cents after touching 83.11, the weakest since Feb. 27.

Turkey’s lira rose 0.6 percent against the U.S. currency amid indications that the central bank may pause monetary easing.

Nine out of 16 economists surveyed by Bloomberg News predict the bank will keep the benchmark repurchase rate unchanged tomorrow at 8.25 percent. The nation’s central bank has gradually increased the average charge of funding provided to banks this month, according to data compiled by Bloomberg.

Japan’s currency appreciated as demand for havens was bolstered as Russian President Vladimir Putin meets his Ukrainian counterpart, Petro Poroshenko, today in Belarus. Ukraine said yesterday an armored column including 10 tanks entered from Russia as the government in Moscow unveiled plans to send a second convoy with humanitarian aid into its neighbor’s rebel-held territory.

Market Levels

The 14-day relative strength index for dollar-yen rose to 78.4 yesterday. That was the highest since January 2013 and above the 70 level that signals to some traders an asset has risen too far, too fast, meaning it may be about to reverse course.

“The fact that dollar-yen was overbought might see it pull back a little bit to a more reasonable level,” said Stan Shamu, a market strategist at IG Ltd. in Melbourne. Geopolitics “could be a driver as well, because it strengthens the yen,” Shamu said.

U.S. durable goods orders excluding transportation fell 0.8 percent in July, missing the median forecast for a 0.5 percent advance, a report showed today. Overall orders jumped 22.6 percent, the most on record, as bookings surged for commercial aircraft.

Federal Reserve Chair Janet Yellen said last week in a speech at a conference in Jackson Hole, Wyoming, that an improving U.S. jobs market may prompt the central bank to raise interest rates next year. The Fed is winding down its monthly bond-buying and has held its benchmark interest-rate target at virtually zero since December 2008.

ECB Stance

European Central Bank President Mario Draghi said last week investor bets on euro-area inflation “exhibited significant declines at all horizons” in August. Policy makers “will use all the available instruments needed to ensure price stability over the medium term,” he said in a speech in Jackson Hole.

A preliminary reading of German inflation due on Aug. 28 may show price gains in the euro area’s largest economy stalled in August from the previous month, based on calculations using a harmonized European Union method.

A European Commission report the same day may show its index of executive and consumer sentiment fell this month to 101.5, according to the median estimate of economists surveyed by Bloomberg. That would be the lowest level since February.

The yen has weakened 0.8 percent in the past month, according to Bloomberg Correlation-Weighted Indexes that track 10 developed-nation currencies. The dollar has advanced 1.4 percent, the best performer after the Norwegian krone. The euro has fallen 0.5 percent.

“The main focus for the markets will be how those geopolitical tensions flow through and impact the euro-zone economy,” said Peter Dragicevich, a currency strategist at Commonwealth Bank of Australia in London. The euro has had a “very gradual decline and that illustrates it’s been driven by macroeconomic divergence.”

To contact the reporters on this story: Eshe Nelson in London at enelson32@bloomberg.net; Rachel Evans in New York at revans43@bloomberg.net

To contact the editors responsible for this story: Dave Liedtka at dliedtka@bloomberg.net Paul Cox, Kenneth Pringle


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