Daily Forex Round-Up: Yen (JPY) Up from a 20-Month Low
December 20 proved to be a good day for the yen, which has been under pressure since the Liberal Democratic Party (LDP) won the general election in Japan. Although the Bank of Japan increased its asset-purchasing programme, it did not raise its inflation target, which supported the yen. The euro, started the day by declining on fiscal cliff concerns, but was later boosted by the US gross domestic product report, which sent the single currency higher against the greenback (USD).
**Yen Bounces as BOJ Keeps Inflation Target**
On December 20, Bloomberg reported that the yen strengthened from a 20-month low against the dollar, gaining 0.2 percent to trade at 84.27 per dollar at 8:58 a.m. EST. Japan’s currency gained ground against the euro as well, trading 0.3 percent higher at 111.96 per euro. The yen recovered from multi-month lows against other majors as the BOJ introduced further monetary stimulus but held its inflation target.
“There’s a sell on the fact,” commented Jane Foley, a senior foreign-exchange strategist at Rabobank, as quoted by Bloomberg. “The market got a little bit over-excited about the inflation target. The move we saw in the yen was over-extended and we’re now seeing some pullback.”
The Financial Times however notes that analysts see the yen strength as short-lived, with yen-selling likely to remain one of the most popular bets in the currency markets.
**The Single Currency Extends Gains**
The other major news on December 20 was the US GDP report which showed that US gross domestic growth in the third quarter was 3.1 percent, up from the 2.7 percent annual rate reported in November.
“The US GDP data definitely gave a modest boost to risk-taking even though it’s a final number,” noted Brian Kim, currency strategist at Royal Bank of Scotland (LON:RBS, NYSE:RBS), as quoted by Reuters.
The modest boost however was sufficient to send the single currency up against the dollar, with Bloomberg reporting that the euro advanced 0.5 percent to $1.3287. The positive news weighed on the greenback, a traditional haven currency, and sent the dollar index 0.3 percent down to 79.039.
**Kiwi (NZD) Hits a Week Low**
Despite the improved risk appetite, the New Zealand dollar declined on December 20, with Bloomberg reporting that the New Zealand currency touched 83.31 US cents, the lowest since December 10. Later, however, the Kiwi clawed back some losses to trade at 83.51. It also lost 0.3 percent to ¥70.17.
!m(/uploads/story/1080/thumbs/pic1_inline.png)The New Zealand dollar was dragged down by domestic data which showed that the country’s GDP grew less than forecast the third quarter of 2012. “The GDP figures came in a shade below expectations,” noted Mike Jones, a currency strategist at Bank of New Zealand as quoted by Bloomberg. “The market is well aware that the third quarter was a bit of a speed wobble in the New Zealand economic recovery, and the more timely forward-looking indicators are quite solid.”
**Aussie (AUD) Holds Losses**
The Australian dollar also had a difficult day due to fiscal cliff concerns, maintaining a three-day loss against its US counterpart. It was little changed at $1.0477 after losing 0.8 percent in the previous three days. “Another 24 hours goes by and we still don’t have any concrete development on the fiscal cliff with the end of the year not far away,” noted Robert Rennie, chief currency strategist at Westpac Banking Corp (ASX:WBC), as quoted by Bloomberg. “That’s one good argument for a lower Aussie.”
The other argument for a lower Aussie was the remark of the Australian Treasurer Wayne Swan, who said that a budget surplus in the 2012-2013 year was unlikely. “What we’ve seen is a sledgehammer hit our revenues,” Mr Swan said, as quoted by Bloomberg.