Business

Yen enjoys respite as risk aversion returns, euro eyes 2013 peak

December 12, 2013

The yen held firm in Asia today, having risen broadly on the back of a slump on Wall Street as expectations grew the Federal Reserve could scale back stimulus as early as next week.

News that Congress has reached a bipartisan budget deal that would end three years of impasse and fiscal instability was seen clearing a potential hurdle for the Fed to taper its massive bond-buying program.

The selloff in risk assets prompted a squeeze on short yen positions, a very crowded trade recently. That saw the euro slip to 141.20 yen (RM4.43), pulling further away from a five-year peak of 142.19 (RM4.47) set on Tuesday.

The dollar fetched 102.46 yen (RM3.22), down from a seven-month high of 103.40 (RM3.25) touched on Tuesday. Commodity currencies, as well, lost ground against the yen.

The Aussie, often sold in times of heightened risk aversion, fell more than 1% against the greenback. It last stood at $0.9034 (RM2.90) and could stay pinned down ahead of domestic jobs data due 0030 GMT.

Analysts polled by Reuters expect the Australian economy to have generated 10,000 jobs, not enough to keep the jobless rate from edging up to 5.8%. Any disappointment could see investors push the Aussie towards its recent low of $0.8989 (RM2.89).

"If job growth falls short of market expectations... the ongoing weakness in the labour market may prompt the Reserve Bank of Australia to adopt a more dovish tone for monetary policy," said David Song, currency analyst at DailyFX.

"The central bank may show a greater willingness to further embark on its easing cycle in 2014 as growth and inflation remain subdued."

In contrast, the Reserve Bank of New Zealand maintained its hawkish stance today, signalling that interest rates could start rising in the first half of next year.

That helped push the kiwi to $0.8256 (RM2.65) and well off its overnight low of $0.8201 (RM2.64).

Oddly, prospects for less stimulus from the Fed again failed to lift the US dollar, which was left dangling near a six-week low against a basket of major currencies.

The main reason for its recent decline has been a rallying euro. The common currency has climbed nearly 4% since November 11 and at $1.3786 (RM4.43) is now within easy reach of its 2013 peak of $1.3833 (RM4.45) set back in October.

The latest run higher was fuelled by growing expectations the European Central Bank will not be providing fresh stimulus any time soon, although some analysts are starting to see little value in the euro at current levels.

"We entered a short EUR/USD recommendation Wednesday, targeting a move down to 1.32 with our stop set at 1.3975," analysts at BNP Paribas wrote in a note to clients.

"We think rate differentials are likely to move against the euro once again in the near-term," they said, adding the euro/dollar was trading rich according to their analysis.

There was little reaction to media reports that Stanley Fischer, who led the Bank of Israel for eight years until he stepped down in June, could become the Fed's next vice chair.

Sebastien Galy, strategist at Societe Generale, said Fischer was a mentor of the current Fed Chairman, Ben Bernanke, and "is very rationally a dove, when needed".

Such a view, if it becomes widespread, could potentially weigh on the greenback. - Reuters, December 12, 2013.

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