The yen dropped against all of its 16 major peers as Asian shares advanced amid continued negotiations among U.S. lawmakers to avert a default, curbing demand for Japan’s currency as a refuge.
The dollar rose for a fourth day against the Japanese currency as U.S. Republicans and President Barack Obama pledged further discussions on a debt-limit increase and government shutdown. Australia’s dollar was headed for back-to-back weekly gains after the yield premium its two-year debt offers over the U.S. climbed to its highest since April. New Zealand’s currency gained before a Chinese trade report tomorrow economists forecast will show exports and imports grew last month.
“An agreement on the debt ceiling is seen as a risk-on catalyst, while the opposite is risk off -- it’s as simple as that,” said Daisaku Ueno, the chief currency strategist at Mitsubishi UFJ Morgan Stanley Securities Co. in Tokyo, a unit of Japan’s biggest financial group by market value. “It’s convenient to use dollar-yen to take part in this kind of swing trade.”
The yen depreciated 0.2 percent to 98.33 per dollar as of 8:55 a.m. London time, having slid 1.5 percent in the prior three sessions. It fell as low as 98.55, the weakest since Oct. 1. Japan’s currency dropped 0.4 percent to 133.30 per euro, poised for a 0.9 percent weekly decline. The greenback fell 0.3 percent to $1.3558 per euro.
The MSCI Asia Pacific Index of shares climbed 1.3 percent. Japan’s markets will be closed on Oct. 14 for a holiday.
Obama and House Republican leaders met for 90 minutes at the White House yesterday after House Speaker John Boehner of Ohio said he would offer a measure to postpone a potential U.S. default to Nov. 22 from Oct. 17.
The president didn’t accept or reject Republicans’ plan for a short-term increase in the debt limit. The two sides planned further talks among their staff members last night to address the president’s insistence that Republicans agree to fund the government before starting broader fiscal talks.
The dollar has climbed 0.4 percent this week, according to Bloomberg Correlation Weighted Indexes that track the currencies of 10 developed nations. The Australian currency rose 0.8 percent, while the euro strengthened 0.4 percent and the yen weakened 0.6 percent.
Dollar gains may stall before a report today predicted to show confidence among U.S. consumers declined to the lowest level since January this month. The Thomson Reuters/University of Michigan preliminary index of sentiment decreased to 75.6 this month from 77.5 in September, according to the median estimate in a Bloomberg News survey.
A report on U.S. retail sales scheduled to be released today is among those that have been delayed by the partial U.S. government closure that began Oct. 1 after Republicans insisted on changes to a 2010 health-care law.
A shutdown lasting through the end of the week could cost the economy 0.2 percentage point in growth, according to the median estimate in a Bloomberg survey of economists. The damage escalates to a 0.5-point loss if the shutdown carries through Oct. 25. The closure has also pushed out expectations for when Federal Reserve will start to taper monetary stimulus.
Goldman Sachs Group Inc. raised its forecast for the yen versus the dollar saying momentum behind Prime Minister Shinzo Abe’s reforms has slowed and expectations of further easing by the Bank of Japan haven’t been realized.
The yen will trade at 98 per dollar over three months, the bank said, from an earlier projection for it to fall to 105, according to a note to clients dated Oct. 10. Japan’s currency will trade at 103 over six months and 107 over a year, compared with previous forecasts of 105 and 110 respectively, it said.
“We expect additional monetary policy easing and some further structural reforms around the beginning of the next fiscal year,” analysts led by London-based chief currency strategist Thomas Stolper wrote. “This suggests that dollar-yen could start to drift higher in the first quarter next year. This would also correspond to the expected start of Fed tapering.”
Concern that the lack of U.S. data and slower growth may delay a reduction of bond purchases by the Fed has helped widen the yield gap between the U.S. and Australian government securities. Australia’s two-year debt offered holders 2.5 percentage points more in yield than similar-maturity Treasuries, the most since April 22.
Aussie gains may be sustained before a report tomorrow that will probably show imports by China climbed for a third-straight month. Inbound shipments rose 7 percent in September from a year earlier and exports grew 5.5 percent, according to median estimates in a Bloomberg poll. China is Australia’s largest trading partner.
China’s economy has picked up in the third quarter and may expand about 7.5 percent or 7.6 percent this year, Deputy Central Bank Governor Yi Gang said yesterday in Washington. The world’s second-largest economy may grow about 7 percent for the “foreseeable future,” he said.
“The momentum has picked up and a lot of the fears have waned over Chinese growth,” said Sean Callow, a senior currency strategist at Westpac Banking Corp. (WBC) in Sydney. “There’s no doubt that’s been one of the reasons the Aussie dollar has been more resilient than in the past.”
Australia’s dollar added 0.2 percent to 94.73 U.S. cents and has gained 0.4 percent this week. It climbed 0.4 percent to 93.13 yen, up 1.3 percent from Oct. 4. New Zealand’s currency climbed 0.6 percent to 83.32 U.S. cents and 0.8 percent to 81.93 yen
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Chart: WorldWideMarkets Alpha Trader