Yen Gains Before Jobs Data Weighing on High-Yielding Currencies

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  • Japanese currency set for its biggest weekly advance this year
  • Traders see 26% odds of Fed rate increase this month

Australia Will Cope With China's Slowdown: Hockey

The yen headed for its biggest weekly advance this year while the U.S. dollar gained versus higher-yielding currencies as investors sought safety before a U.S. jobs report that may encourage the Federal Reserve to raise interest rates for the first time since 2006.

Currencies of high-yielding nations, and particularly commodity producers, weakened against the greenback amid concern Chinese shares will resume their slide when the stock market reopens next week following holidays. Australia’s dollar slid to a six-year low, on track for its worst week in more than three months. Traders are having to weigh the prospect of higher U.S. interest rates versus broader risk aversion as stocks continue to decline.

“Risk-off is winning at this point in time and you wonder how payrolls interacts with that souring of the mood,” said John Hardy, head of foreign-exchange strategy at Saxo Bank A/S in Hellerup, Denmark. “Traditional high-yielders are very weak. Weak payrolls and risk-off means dollar-yen is at risk of a pretty significant selloff. We need an unambiguously strong employment report to get the focus higher for the dollar.”

The yen headed for a third weekly gain after a China-led global stock rout wiped about $7 trillion from markets. The Japanese currency strengthened 0.8 percent to 119.12 per dollar as of 6:55 a.m. New York time Friday, set for a 2.1 percent weekly advance, the most since Dec. 12.

Australia’s and New Zealand’s dollars and South Africa’s rand were among the biggest losers versus the U.S. currency on Friday of 16 major peers. The Aussie fell 0.5 percent to 69.83 U.S. cents after slumping to 69.59 cents, the lowest since April 2009. It’s down 2.6 percent in the past week, the steepest decline since May 22.

Asian shares posted a seventh straight weekly decline, their longest losing streak since 2011. Mainland Chinese markets will open Monday after the nation’s World War II victory parade this week. The Stoxx Europe 600 Index fell 2 percent Friday.

“There’s nervousness in the market about growth in Asia and the implications of the Fed changing policy should payrolls be seen as clearing the way for a hike,” said Sean Callow, a strategist at Westpac Banking Corp. in Sydney. “The mood is probably gloomy enough that the Aussie is going to struggle near term.”

Fed Bets

Investors have pared bets on a September liftoff by the Fed to 26 percent amid turmoil in global markets, from 50 percent a month ago. The calculation is based on the assumption that the effective fed funds rate will average 0.375 percent after the first increase.

Friday’s nonfarm payrolls report represents the last major data point before the Fed meets on Sept. 16-17. Employers added 217,000 jobs in August, economists forecast in a Bloomberg survey before the data are released. U.S. markets are closed on Monday for Labor Day.

The Bloomberg Dollar Spot Index, which tracks the currency versus 10 major peers, fell 0.1 percent, paring a second weekly gain to 0.3 percent.

“If they do hike in September, we will see more market volatility and more uncertainty,” Mitul Kotecha, head of Asia Pacific currency strategy at Barclays Plc in Singapore, said in a Bloomberg Television interview. “In that sense, the Fed may just back off from moving.”