Yen Gains Versus Peers on Political Turmoil; Aussie Drops
The yen gained against all of its 16 major counterparts amid concern that leadership contests in France and the Netherlands will hinder efforts to resolve Europe’s debt crisis, boosting demand for haven assets.
Japan’s currency rose against the dollar and euro before Dutch Prime Minister Mark Rutte is set to speak in parliament today, less than 24 hours after tendering his Cabinet’s resignation. French President Nicolas Sarkozy and Socialist challenger Francois Hollande face off in a second ballot May 6. Australia’s dollar fell to a two-week low after data showed inflation slowed more than forecast, boosting speculation the nation’s Reserve Bank will lower borrowing costs.
“The market’s got nervous because of political uncertainty in Europe,” said Morio Okayasu, chief analyst in Tokyo at FOREX.com Japan Co., a unit of the online currency trading firm Gain Capital Holdings Inc. (GCAP) in Bedminster, New Jersey. “The bias is for the safe-haven currencies such as the yen to be bought.”
The yen added 0.3 percent to 80.91 per dollar at 7:01 a.m. in London. It rose 0.3 percent to 106.53 per euro. The 17-nation currency was at $1.3167 from $1.3156 after falling 0.5 percent yesterday, the most since April 13. The so-called Aussie slid 0.6 percent to $1.0262 after earlier touching $1.0247, the weakest level since April 11.
Rutte will speak during a debate in the Netherlands parliament in The Hague today in a bid to break a budget deadlock over additional cuts of at least 9.5 billion euros ($12.5 billion) needed to comply with European deficit limits. Rutte offered to quit after budget talks with Geert Wilders’s Freedom Party collapsed.
In France, presidential challenger Hollande is set to beat incumbent leader Sarkozy in a second round of balloting next month, according to four polls. Interior Ministry estimates on April 22 gave Hollande 27.1 percent and Sarkozy 26.7 percent of the first ballot. National Front candidate Marine Le Pen came in third, with about 19.3 percent of the vote.
The yen has declined 7.5 percent this year, the worst performance among the 10 developed-nation currencies tracked by Bloomberg Correlation Weighted Indexes. The dollar has fallen 2.2 percent and the euro has depreciated 0.6 percent.
Bank of Japan (8301) officials will meet on April 27 to decide on policy. Governor Masaaki Shirakawa and his board unexpectedly expanded bond purchases by 10 trillion yen ($123.6 billion) and set a 1 percent inflation goal on Feb. 14 before leaving stimulus policies unchanged at its next two meetings.
The central bank is “committed” to monetary easing, Shirakawa said last week in New York. Deputy Governor Kiyohiko Nishimura said on April 18 the BOJ is “committed to implementing additional easing measures, if deemed necessary.”
“I do think the yen’s safe-haven status will be steadily undermined because of their very, very loose monetary policy and potential more quantitative easing,” said Thomas Averill, Sydney-based managing director of Rochford Capital.
In the U.S., the Federal Open Market Committee begins a two-day meeting today. The central bank is scheduled to release a statement on monetary policy along with its projections for growth, unemployment and inflation tomorrow. All of 79 economists surveyed by Bloomberg News predict the Fed will keep its benchmark rate in a range of zero to 0.25 percent.
“We see risks that their economic and rate forecasts will be considered hawkish,” Tomoko Fujii, a Tokyo-based senior foreign-exchange strategist at Bank of America Merrill Lynch wrote in a note today. “That may prove positive for the dollar.”
Australia’s currency weakened versus all of its major peers after a report showed the nation’s consumer prices rose 1.6 percent in the first quarter from a year earlier. That’s the slowest pace since 2009 and compares with a forecast for a 2.2 percent increase.
Central bank Governor Glenn Stevens signaled April 3 he may end a three-month pause in interest-rate cuts as soon as next month if weaker-than-forecast growth slows inflation.
“The fact that it’s a more benign reading on inflation, you’ve got higher risk aversion -- all are likely to add pressure on the Aussie dollar,” said Mitul Kotecha, head of global currency strategy in Hong Kong at Credit Agricole CIB. “A 25-basis-point cut is the most likely outcome” at the RBA’s next meeting, he said.
The Aussie may decline to 82 yen after forming a “head- and-shoulders” pattern on its chart, said Pak Lai Ng, Singapore-based technical analyst at Forecast Pte. The formation was completed after the currency’s price movement formed three tops on March 2, March 19 and March 27, the middle of which is the highest, he said.
A head-and-shoulders pattern appears when a currency makes three consecutive peaks, with the middle being the highest. The Australian dollar fell 0.9 percent to 83.02 yen. It last touched 82 yen on Feb. 6, when it slid to as low as 81.88.
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