The yen increased the most in more than three weeks versus the dollar as a decline in China's currency and its stock market stoked concern development in the world’s second-largest economy is slowing.
Japan's currency advanced against most of its 16 major counterparts on demand to unwind carry trades while the Yuan plummeted the most in more than five years on bets the central bank wants an end to the currency’s surges. Demand for the less-risky currencies rallied after a Russian official said Ukraine faces a “high” chance of defaulting on its sovereign debt. South Africa's rand achieved a six-week high as a report showed the economy progressed more than projection in the fourth quarter.
“Risk aversion continues to play a role in dollar-yen,” Robert Sinche, a global strategist at Pierpont Securities Holdings LLC in Stamford, Connecticut, said in a phone interview. “It’s a bit surprising, given there’s been some big moves happening in China and other markets,” that moves in the currencies market are limited, Sinche said.
The yen spiked up 0.3 percent to 102.24 per dollar as of 5 p.m. New York time, touching the largest surge on a closing basis since February 3. The euro inched up 0.1 percent to $1.3745. Japan’s currency soared 0.2 percent to 140.52 per euro.
Carry Trade
Carry-trade investors, who borrowed the Japanese currency at the end of 2013 to fund against all 16 major currencies, have incurred losses this year, according to data compiled by Bloomberg.
“Coming into the year, there was a pretty strong consensus this is going to be a better year for the dollar, and there were some pretty sizable longs being put against the yen and those haven’t worked out,” Pierpont’s Sinche said. “Foreign-exchange investors’ willingness and ability to put on big positions really get squeezed out now.” A long position is a bet that an asset will increase in value.
JPMorgan Chase & Co.’s volatility index for the currencies of the Group of Seven nations fell to 7.50 percentage points, touching the lowest since October 28.
The yuan dropped for a sixth day on speculation the People’s Bank of China is attempting to ward off speculators before a possible widening of the trading band. The Shanghai Composite Index (SHCOMP) slumped 5.1 percent in the past four days on speculation that a weaker housing market will erode demand for everything from electric appliances to cars.
Yuan Outlook
“Some investors may link the weakening of the yuan to a less optimistic outlook,” said Zeng Xianzhao, an analyst at Everbright Securities Co. in Chongqing. “Property financing curbs will probably be prolonged and other banks will follow suit. The slowdown in the property sector will spill over to other industries.”
The currency fell 0.5 percent to 6.2310 per dollar, according to China Foreign Exchange Trade System prices. That’s the biggest drop since December 2008.
The spot rate ended the day weaker than the central bank’s reference rate for the first time since September 2012. It can diverge by a maximum 1 percent from the fixing, which was set at 6.1184 today.
Volume in over-the-counter options on the dollar-yuan exchange rate amounted to $22 billion, the largest share of trades at 35 percent, according to data reported by U.S. banks to the Depository Trust Clearing Corp. and tracked by Bloomberg. Dollar-yuan options trading was 194 percent more than the average for the past five Tuesdays at a similar time in the day, according to Bloomberg analysis.
Rand Advances
The rand gained as Africa’s biggest economy recorded faster expansion, led by a recovery in mining and manufacturing.
Gross domestic product growth accelerated to 3.8 percent in the three months through December from an annualized 0.7 percent the previous quarter, the statistics office said in a report in the capital, Pretoria. The median estimate of 21 economists in a Bloomberg survey was 3.4 percent.
Stronger growth may ease pressure on fiscal targets to be set by Finance Minister Pravin Gordhan as he prepares to present his annual budget to lawmakers tomorrow.
“The GDP number increases the likelihood of a positive surprise on the revenue side that may impact on the deficit, and people are positioning for that,” Mohammed Nalla, head of strategic research at Nedbank Group Ltd., said by phone from Johannesburg. “We’re seeing some offloading of long-dollar positions.”
South Africa’s currency advanced 0.6 percent to 10.7287 per dollar, a fourth day of gains.
Ukraine Situation
Russia, which suspended its $15 billion aid package to Ukraine last week, opposes the inclusion of its first $3 billion tranche in a possible restructuring, Deputy Finance Minister Sergei Storchak told reporters in Moscow today. There’s a “slight” risk Ukraine won’t repay the first installment of the bailout and Russia is under no legal obligation to provide the remaining amount, he said.
“Ukraine may not be able to pay its debt and euro-dollar seems to be reacting a little bit of that,” Brad Bechtel, managing director at Faros Trading LLC in Stamford, Connecticut, said in a phone interview. “We’re not out of the woods yet in Ukraine. There’s question on domestic financing capability. We’ll see a lot more noise from them.”
Ukraine’s currency plunged as the nation’s parliament delayed a vote on a national unity government, creating a potential drag on efforts to obtain aid.
The hryvnia, which is managed by the central bank, weakened 6 percent to 9.7250 per dollar, extending its drop this year to 16 percent.
Dollar Slump
The dollar fell as the Conference Board’s consumer confidence index decreased to 78.1 from a revised 79.4 in January that was weaker than initially estimated, the New York-based private research group reported. Another report showed home prices were increasing at a slower pace.
“There’s obviously still a lot of debate about how much is weather impacted or not, but the slide in the Surprise Index is still relevant,” said Jeremy Stretch, head of currency strategy at Canadian Imperial Bank of Commerce in London.
The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major currencies, fell 0.1 percent to 1,019.21. It has dropped 1.2 percent this month, the most since September.
