Yen Rallies for Second Day as Resource-Nation Currencies Suffer

  • Iran's supply increase cast doubt on oil-price recovery
  • Fed will unveil rate forecasts Wednesday after meeting

The yen strengthened for a second day on Tuesday , while currencies of resource-rich nations slumped after Iran bolstered crude exports, a move that may prolong the commodities rout.

Japan’s currency rose against all the major peers, adding to gains that have made it this year’s best performer in that group. Crude prices fell as Iranian production climbed last month by the most in almost two decades following the end of sanctions, and the nation has “reasonable arguments” for not joining an alliance to cap output, Russian Energy Minister Alexander Novak said after meeting with his Iranian counterpart.

"It’s not a positive environment for commodities and all these currencies that are very much exposed to that," said Mazen Issa, senior foreign-exchange strategist at Toronto-Dominion Bank in New York. "We’re still arguing for significant correction in emerging-market and commodities currencies."

The yen’s haven appeal was also boosted by U.S. data that showed retail sales in the world’s biggest economy fell for a second month, calling into question the narrative that bigger gains in consumer spending would propel economic growth and higher inflation in the U.S.

Japan’s currency was little changed at 113.13 per dollar as of 7:42 a.m. in Tokyo Wednesday, after strengthening 0.6 percent in New York and extending its advance this year to 6.2 percent. The currencies of Brazil, South Africa and New Zealand all fell at least 1 percent on Tuesday.

As market volatility that reigned in February subsided for now, central banks’ policy trajectories are back in the spotlight, with policy makers in the U.S. and the U.K. poised to unveil their decisions in the next two days. JPMorgan Chase & Co.’s Global FX Volatility Index was at 10.53, from as high as 12.5 last month.

Central Banks

BOJ Governor Haruhiko Kuroda and his board kept the target for increasing the monetary base unchanged, and left the benchmark rate at minus 0.1 percent. Kuroda said at a post-decision briefing that he doesn’t need to wait to see the full impact of the negative rate before acting again, if change is needed.

Investors’ attention turns to the Fed meeting that ends Wednesday and the path of the tightening cycle following an interest-rate increase in December, the first in almost a decade. Officials will also update the so-called dot plot, or outlook for the expected path of the benchmark rate. The median rate-hike outlook by officials in December was for four increases in 2016.

The Bloomberg Dollar Spot Index, which tracks the currency against 10 major peers, was little changed at 1,209.17. It has dropped 1.9 percent this year.

"The dollar on a trade-weighted basis has pulled back and this might give the Federal Reserve more scope to raise rates," Marc Chandler, global head of currency strategy in New York at Brown Brothers Harriman & Co, said on Bloomberg Radio.

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