Yen Advances With Aussie as Last Year’s Declines Seen Excessive

The yen and Australian dollar, the two worst-performing major currencies last year, posted the first weekly increases in more than two months on speculation their recent declines were too rapid.

The U.S. dollar is had its largest five-day gain since November versus the euro after Federal Reserve Chairman Ben S. Bernanke said the headwinds that have held back the U.S. economy may be abating. Japan’s currency advanced for a second day versus the shared currency amid bets the nation’s investors will buy yen as they repatriate earnings. New Zealand’s dollar posted the biggest gain in three months.

“We’re seeing profit-taking going on in the market right now at levels we haven’t seen in several weeks,” Ravi Bharadwaj, a Boston-based senior market analyst at Western Union Business Solutions, a unit of Western Union Co., said in a phone interview. “Yen repatriation flows are likely to continue into the end of the month.”

The yen was little changed at 104.86 per dollar at 5 p.m. New York time, and gained 0.3 percent this week, the most since the period ended Oct. 25. It slid to 105.44 yesterday, the weakest since October 2008. Japan’s currency gained 0.6 percent to 142.48 per euro. The euro fell 0.6 percent to $1.3589, having fallen 1.2 percent this week.

Australia’s dollar climbed 0.4 percent to 89.45 U.S. cents after adding as much as 1.1 percent, the biggest advance since Oct. 1. It jumped 0.9 percent this week, its first five-day gain since the period ended Oct. 18.

Kiwi, Real

New Zealand’s dollar advanced versus all 16 major counterparts amid speculation the Reserve Bank of New Zealand will raise its benchmark interest rate at a Jan. 29 meeting. The currency appreciated 1.1 percent to 82.73 U.S. cents after increasing 1.6 percent, the most since Sept. 18.

“I would not rule out a rate hike, which most expect in March,” Marc Chandler, chief currency strategist at Brown Brothers Harriman & Co., said in a phone interview.

The Brazilian real climbed for the first time in four days on speculation Finance Minister Guido Mantega will cite improved fiscal prospects when he comments on the budget today. The currency increased 0.5 percent to 2.3765 per dollar after rising 0.8 percent, the most since Dec. 23.

Asian Currencies

The Philippine peso, India’s rupee and Thailand’s baht led declines in Asian currencies this week as a gauge of China’s service industries fell to 54.6 in December from 56 in November. A number more than 50 indicates an expansion.

The peso depreciated 0.5 percent today to 44.64 per dollar after falling to 44.66, the weakest since Sept. 2. The rupee fell 0.5 percent this week to 62.155 per dollar, according to prices from local banks compiled by Bloomberg. The baht has dropped 0.9 percent this year to 33.01 per dollar.

Japan’s currency snapped nine weeks of losses against the dollar, which saw it slide 18 percent last year amid unprecedented monetary stimulus from the Bank of Japan.

“We may pause a little bit in dollar-yen because of the seasonals there, as Japanese investors typically bring home some of their foreign holdings or foreign exposure mid-January through mid-February,” said Greg Anderson, head of global currency strategy at Bank of Montreal in New York. “I’d be a buyer of dollar-yen on a 104 handle,” he said, predicting further stimulus from the BOJ this year.

‘Thin Liquidity’

The yen has tumbled 16 percent in the past 12 months, the worst performer of the 10 developed-nation currencies tracked by Bloomberg Correlation Weighted Indexes. The Aussie has the second-biggest decline, at 13 percent, while the U.S. dollar gained 3.6 percent.

“The market, from a positioning perspective, is very short of yen and vulnerable to thin liquidity,” said Sue Trinh, a senior currency strategist at Royal Bank of Canada in Hong Kong. “The short-term risk for dollar-yen is for further profit-taking.”

The dollar erased a drop versus the yen after Bernanke said the U.S. is poised for faster growth. Bernanke cited economic progress on Dec. 18 when officials announced they would trim monthly bond purchases to $75 billion from $85 billion starting this month.

Policy makers will continue to reduce quantitative easing in $10 billion increments over the next seven meetings, ending the program in December 2014, according to the median estimate of economists surveyed by Bloomberg on Dec. 19.

The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major peers, added 0.1 percent to 1,026.23 after rising 0.3 percent yesterday. It was up 0.3 percent on the week.

‘Significant Divergence’

Economists predict the European Central Bank will keep interest rates unchanged at a record-low 0.25 percent when policy makers meet on Jan. 9. The euro will decline to $1.33 by March and $1.31 by mid-year, according to the median estimate in Bloomberg News surveys.

“Euro-dollar is going to weaken this year as the Federal Reserve winds down asset purchases, while we think the ECB is going to have to ease further,” said Vassili Serebriakov, a foreign-exchange strategist at BNP Paribas SA in New York. “That’s a significant divergence in U.S. and euro-zone rates, and that will be a key driver of euro-dollar weakness.”

Trading in over-the-counter foreign-exchange options totaled $49 billion, from $70 billion yesterday, according to data reported by U.S. banks to the Depository Trust Clearing Corp. and tracked by Bloomberg. Volume in options on the dollar-yen exchange rate amounted to $10 billion, the largest share of trades at 21 percent. Options on the euro-dollar rate totaled $7.8 billion, or 16 percent.

Dollar-yen options trading was 25 percent less than the average for the past five Fridays at a similar time in the day, according to Bloomberg analysis. Euro-greenback options trading was 2 percent above average.