Synopsis
In the current foreign exchange environment, the US dollar faces challenges from the rising yen, the resilience of the yuan and the stability of the Australian dollar. As traders closely monitor upcoming U.S. employment and inflation statistics, there is renewed hope for global economic growth.
ReutersThe resurgent yen, surging Aussie and steady rise in the yuan put the dollar under pressure on Thursday and caused it to drift toward a weekly decline, as investors’ attention turned to the next batch of U.S. workers and inflation data.
A stronger one than expected US Jobs Report overnight, briefly brought the greenback back up. But traders view recent signs of U.S. economic resilience as clues to a broader improvement in global growth and are betting on Japan as a likely winner.
The yen is up more than 2.6% since Prime Minister Sanae Takaichi’s Liberal Democratic Party won a landslide victory in Sunday’s election and a change in mood appears to be coming as markets put aside fears about spending to focus on growth.
Against the dollar, the yen traded as high as 152.55 on Wednesday, before stabilizing slightly below 153.05 per dollar on Thursday. The rebound is nascent – since the yen has been falling for years – but it has been significant enough to turn heads in the market.
“It’s Japan that’s buying,” said Naka Matsuzawa, chief strategist at Nomura Securities in Tokyo, with the yen – rather than the euro – becoming the preferred route for investing outside the United States.
“Foreigners are buying both stocks and bonds,” he said.
“With a stronger government, the market expects higher growth.”
The yen’s gains could easily accelerate, analysts say, if it breaks through resistance around 152 per dollar, or even the 200-day moving average at 150.5. It also gained against the crosses, rising 2% on the euro in two sessions and crossing the strong side of a 50-day moving average.
Data released yesterday showed that U.S. job growth unexpectedly accelerated in January and the unemployment rate fell to 4.3%. A survey released earlier this month showed a surprise rebound in U.S. industrial activity in January.
Thursday morning’s moves “were fairly small, but the Australian dollar was above 71 cents and returned to a three-year high after the central bank governor said the board would raise rates again if inflation took hold.”
The euro was firm at $1.1875, the pound sterling at $1.3628 and the kiwi at $0.6052.
The dollar’s other major driver in recent weeks has been China’s yuan, which has seen a steady rise thanks to booming exports and hints from officials that China could tolerate a stronger currency.
Corporate demand ahead of the Lunar New Year holiday helped it hit a 33-month high of 6.9057 per dollar on Wednesday and in offshore trading on Thursday it was still a little firmer at 6.9025.
This week, the American dollar the index is down 0.8% at 96.852. In terms of potential catalysts, US jobless claims figures are due later on Thursday and January inflation data are due on Friday.
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