Currencies: U.S. dollar extends dive against yen

April 16, 2013

The U.S. dollar declined against the Japanese currency Tuesday, extending a sharp loss triggered the previous day by heightened worries about global growth and a plunge in gold prices.

The dollar USDJPY +0.5778% bought 96.62 yen during Asian trading hours, building on its 1.9% tumble Monday to ¥97.09.

The yen was the top performer among major currencies Monday after Chinese quarterly growth and monthly industrial production figures came in weaker than expected.

The data set sparked a selloff in commodities, including in gold for June delivery GCM3 +0.03% , which plunged 9.3% on the Comex division of the New York Mercantile Exchange, the biggest one-day decline since the 1980s.

The commodities-sensitive Australian dollar AUDUSD +0.4761% fell to levels not seen in a month after the economic reports from China, Australia’s biggest trading partner. However, the Aussie pared those losses modestly on Tuesday to fetch $1.0338, up from $1.0313 the previous day.

The yen had fallen sharply in the wake of Japan’s launch of an aggressive monetary-policy program aimed at reflating its stagnant economy. Weakness in the yen had prompted investors to borrow the currency at low interest rates and then buy higher-yielding assets. But as gold prices and other markets sold off Monday, the yen benefitted from the reversal of these so-called “carry trades.”

BK Asset Management in a daily roundup Monday said that for foreign exchange traders, there are few important takeaways from the move in gold.

“1) there’s no need to worry about inflation until there are significant and sustainable signs of growth, 2) be worried about the slowdown in China and the U.S., [and] 3) beware of how quickly losses can occur when key levels and stops are taken out. In terms price action, these concerns could lead to further pressure on major currencies,” BK Asset Management said.

Gold price collapses in panic selling

The price of gold slumps to $1,400 an ounce in what appears to be panic selling after China’s first-quarter growth comes in lower than expected. Other markets are also hit, with silver and other commodity prices falling too. Photo: Bloomberg

Eyes on G-20

This week’s meeting among finance ministers and central bank governors from the Group of 20 major economies “has also provoked some hesitancy among [yen] bears, given expected comments aimed at Japan not to engineer a competitive devaluation of its currency,” Crédit Agricole’s global head of currency strategy Mitul Kotecha said in a report to clients Tuesday.

The G-20 officials are scheduled to meet on Thursday and Friday in Washington.

The yen had gained against the dollar Friday after the U.S. Treasury Department warned Japan “to refrain from competitive devaluation and targeting its exchange rate for competitive purposes.”

“Technical indicators suggest that the primary trend remains higher for [the dollar against the yen], with a break below ¥96.07 required to signal a change in short-term trend,” said Kotecha, noting that Crédit Agricole’s quantitative model suggests that short-term fair value for the dollar is around ¥95.68.

The drive lower in commodities helped push U.S. equity indexes down by the most in five months. Adding to anxiety in the market were a pair of deadly explosions at the Boston Marathon.

The ICE dollar index DXY -0.02% , a measure of the dollar against a basket of six other major currencies, rose Tuesday to 82.380 from 82.318 late Monday.

But the WSJ Dollar Index XX:BUXX -0.28% , a rival gauge that uses a slightly larger basket, dropped to 73.49 from 73.70.

The euro EURUSD +0.3118% slipped against the dollar, changing hands at $1.3037, down from $1.3056 late Monday.

The British pound GBPUSD +0.1409% also fell, slipping to $1.5277 from $1.5295.


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