Thursday, 21 November 2013

Yen Weakens Beyond 101 as Yield Spread Widens; Aussie Slides

By Joseph Ciolli & Neal Armstrong - Nov 21, 2013 5:53 AM PT

The yen weakened past 101 per dollar for the first time since July as a divergence in monetary policy between Japan and the U.S. boosted yields on U.S. securities to the highest relative to Japan’s since September.
Japan’s currency fell versus all but one of its 16 major peers after the Bank of Japanstuck to its pledge to expand the monetary base at a policy meeting today, while Federal Reserve meeting minutes signaled a reduction in asset purchases “in coming months.” The euro rose as European Central Bank President Mario Draghi damped speculation of negative deposit rates. Australia’s dollar slumped as Reserve Bank Governor Glenn Stevens said he was “open-mined” on intervention.
Nov. 21 (Bloomberg) -- European Central Bank President Mario Draghi speaks in Berlin about recovery in the euro-area economy, inflation expectations and restoring competitiveness. (Source: Bloomberg)
“The dollar reacting positively towards the possibility of an earlier taper and yields moving higher are pushing dollar-yen higher,” Brian Daingerfield, a Stamford, Connecticut-based currency strategist at Royal Bank of Scotland Group Plc’s RBS Securities unit, said in a phone interview. “The yield differential is a key driver of dollar-yen.”
The yen fell 0.8 percent to 100.86 per dollar at 8:51 a.m. New York time after depreciating to 101.01, the weakest level since July 10. Japan’s currency slid 1.1 percent to 135.92 per euro after declining to a four-year low of 135.95 yesterday. The euro rose 0.3 percent to $1.3472.
The extra yield on 10-year U.S. Treasuries over their similar-maturity Japanese counterparts expanded to 2.19 percentage points yesterday, the widest since Sept. 12 based on closing prices.

BOJ Meeting

Japan’s central bank kept its pledge to expand the monetary base by as much as 70 trillion yen a year at today’s meeting. Nineteen of 37 economists surveyed by Bloomberg said policy makers will add stimulus in the second quarter of 2014 after a planned increase in sales tax, with seven saying it will ease in the July-September period.
BOJ officials are “still sticking to their guns on their inflation target and they’re prepared to do more if required,” said Greg Gibbs, a currency strategist at Royal Bank of Scotland Group Plc in Singapore. “Technically, it’s looking like it’s moving toward a weaker yen.”
The yen tumbled 12 percent this year, the worst performer of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar gained 3.9 percent and the euro advanced 6.3 percent.
U.S. policy makers “generally expected” improvement in employment data that would “warrant trimming the pace of purchases in coming months,” according to minutes of the Fed’s Oct. 29-30 meeting released yesterday. The central bank buys $85 billion of Treasuries and mortgage-backed securities a month. The Fed next meets on Dec. 17-18.

‘Some Support’

“These minutes should provide some support for the U.S. dollar,” David de Garis, a senior economist at National Australia Bank Ltd. in Melbourne, wrote in a note to clients. “Tapering expectations look only to have been delayed somewhat, with perhaps the Fed only one or two further good payroll numbers away from beginning to reduce its asset purchases.”
The Bloomberg U.S. Dollar Index, which tracks the currency against 10 major counterparts, rose 0.2 percent to 1,020.87 after advancing 0.4 percent yesterday. The dollar gauge appreciated beyond its 100- and 200-day moving averages as it approached a four-month high.
Currency volatility increased for a third day with the JPMorgan Chase & Co. Group of Seven Volatility Index climbing as high as 8.07 percent, the most since Nov. 14.

Draghi Speech

The euro rose, paring yesterday’s 0.7 percent drop versus the dollar, after the ECB’s Draghi said policy makers haven’t changed their mind on a negative deposit rate since they cut the benchmark rate to a record low on Nov. 7.
“Don’t try to infer anything from what I say, anything about the possibility of negative rates,” Draghi said in a speech in Berlin. “This was discussed in the last monetary-policy meeting and there’s no more news since then. Let me make this clear.”
Australia’s dollar fell to a two-month low versus the U.S. currency following Stevens’ comments on possible intervention.
“We remain open-minded on the issue,” Stevens said in the text of a speech in Sydney. “Our position has long been, and remains, that foreign-exchange intervention can, judiciously used in the right circumstances, be effective and useful.”
Australia’s currency climbed almost 50 percent in the four years ended Dec. 31 as the nation escaped the 2009 global recession and a China-led mining investment boom spurred growth.

Aussie PMI

The Aussie weakened earlier after HSBC Holdings Plc and Markit Economics said their preliminary Purchasing Managers’ Index for Chinese manufacturing declined to 50.4 in November from 50.9 the previous month. China is Australia’s largest trading partner.
Australia’s dollar dropped 0.8 percent to 92.57 U.S. cents after sliding to 92.50 cents, the weakest since Sept. 16.
Indonesia’s rupiah dropped to the lowest level in more than four years. The currency fell 0.4 percent to 11,703 per dollar, prices from local banks showed. It reached 11,733 earlier, the weakest level since March 31, 2009.
Malaysia’s ringgit fell by the most in two months, tumbling 0.7 percent to 3.2050 per dollar. That’s the biggest drop since Sept. 30.
To contact the reporters on this story: Joseph Ciolli in New York at; Neal Armstrong in London at
To contact the editor responsible for this story: Dave Liedtka at