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Yen Completes Best Weekly Gain in a Month on Iraq

The yen posted the best weekly advance in almost a month versus the dollar after American warplanes struck against militants in Iraq, pulling the U.S. back into a conflict and adding to the allure of haven assets.

Japan’s currency pared gains today after Russia’s Defense Ministry said its warplanes ended drills in the region near Ukraine. The Canadian dollar declined for a second day as slower-than-forecast jobs growth signaled the economy is losing momentum. China’s yuan rose for a fifth day as better-than-projected export growth contributed to a record trade surplus. The Swiss franc rallied the most in two months.

“There’s some risk aversion -- the yen and Swiss franc are doing well,” Eric Viloria, a strategist at Wells Fargo & Co. in New York, said in a phone interview. “It’s adding some uncertainties, it tends to have more short-term impact. Overall economic trends and outlook on monetary policies are still going to dominate the foreign-exchange market.”

The yen advanced less than 0.1 percent to 102.04 per dollar at 5 p.m. New York time, having reached 101.51, the strongest since July 24. Its 0.6 weekly gain was the most since the five days ended July 11. It fell 0.3 percent to 136.83 versus the euro. The 18-nation shared currency climbed 0.3 percent to $1.3410 after adding 0.5 percent, the biggest advance since June 5. The franc increased 0.4 percent to 90.54 centimes per dollar after adding 0.6 percent, the most also since June 5.

Wells Fargo forecasts the yen will weaken to 103 per dollar by the end of the year, versus the median estimate for a drop to 105 by more that 60 economists and strategists in a Bloomberg survey.

Ruble, Yuan

The Bloomberg Dollar Spot Index, which tracks the greenback against 10 developed-market peers, fell 0.1 percent to 1,021.37, trimming a fourth weekly gain to 0.1 percent.

The ruble rose 0.4 percent to 36.1205 per dollar, after earlier depreciating as much as 0.8 percent, as Russia said it’s making efforts to de-escalate the conflict in Ukraine.

“Assets are gaining after statements from Russia’s security council suggesting that Russia is looking to de-escalate,” Ivan Tchakarov, an economist at Citigroup Inc. in Moscow, said by e-mail. “More broadly, the market is really tired of receiving one negative news after another, and so is on the lookout for something positive.”

China’s yuan rose 0.1 percent to 6.1567 per dollar after customs data showed overseas shipments rose 14.5 percent from a year earlier in July, compared with the median estimate in a Bloomberg survey for a 7 percent increase. Imports fell 1.6 percent to give a trade surplus of $47.3 billion.

Canada’s Economy

Canada’s dollar fell after Statistics Canada said employment increased by 200 jobs, versus a projected 20,000 gain by economists surveyed by Bloomberg News. The unemployment rate fell to 7 percent, from 7.1 percent, as people left the labor market.

The loonie, as the Canadian currency is nicknamed for the image of the aquatic bird on the C$1 coin, depreciated 0.4 percent to C$1.0973 per U.S. dollar.

Economists in a Bloomberg survey forecast the unemployment rate would be unchanged. The economy unexpectedly lost 9,400 jobs in June.

Australia’s dollar erased a loss on the export growth in its largest trading partner. The Aussie was little changed at 92.75 U.S. cents and declined for a second week. Australia’s main interest rate is 2.5 percent, compared to zero to 0.25 percent in the U.S., 0.15 percent in the euro area and Japan’s 0.1 percent.

Geopolitical Risks

The yen and franc rose after President Barack Obama, who campaigned for office on a vow to end the Iraq war, and oversaw the full withdrawal of forces from Iraq in 2011, authorized the airstrikes against Islamic State militants if they move toward the Kurdish city of Erbil, where the U.S. has diplomatic personnel. He said the U.S. has no intention of putting troops on the ground.

“Risk aversion is front and center -- the yen is benefiting,” said Joe Manimbo, a market analyst in Washington at Western Union Business Solutions, a unit of Western Union Co. “Now that there’s more and more factors to be concerned about, geopolitical uncertainties are going to linger.”

Manimbo suggests investors curtail exposures to higher-yielding currencies, such as the Australian dollar.

Rising Volatility

A market gauge of currency price swings was at almost a two-month high. JPMorgan Chase & Co.’s Global FX Volatility Index was at 6.24 percent after touching 6.33 percent yesterday, the most since June 4 and up from an all-time low on a closing basis of 5.29 percent on July 3. While rising volatility increases uncertainty and risk, it also creates opportunities for traders to profit on changes in exchange rates.

The yen rose 1.2 percent in the past month, making it the best performer after the U.S. dollar, which gained 1.7 percent, according to Bloomberg Correlation-Weighted Currency Indexes that track 10 developed-market currencies. The euro was little changed.

Strategists have raised their yen forecasts at the fastest pace among major currencies on speculation the Bank of Japan will delay extending its monetary stimulus program until next year at the earliest. While still anticipating a decline, the median year-end estimate of 105 per dollar is down from 109 on May 7, data compiled by Bloomberg show.

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