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Yen Surges as China's Money Market Rate Jumps; Kiwi Falls - (Bloomberg)

Posted by Chris Advincula on Oct 23, 2013 5:22:00 AM

The yen climbed to the strongest level in two weeks against the dollar as the benchmark rate for funds available in China’s banking system jumped by the most since July, spurring demand for safer assets.

Japan’s currency rose versus all its 16 major counterparts as stocks slumped in Asia and Europe. The New Zealand dollar tumbled the most in two months and Australia’s currency weakened as speculation China’s central bank is leaning toward tightening policy damped demand for higher-yielding assets. The Canadian dollar declined the most in two weeks before the central bank announces a policy decision today.

“The yen moves show that people are very sensitive to any notion of tightening,” said Geoffrey Yu, a senior foreign-exchange strategist at UBS AG in London. “There’s risk aversion in Asia, which is supporting the yen.”

The yen rose 0.6 percent to 97.51 per dollar at 8:43 a.m. in London after appreciating to 97.27, the strongest level since Oct. 9. Japan’s currency advanced 0.9 percent to 134.09 per euro. The dollar rose 0.2 percent to $1.3752 per euro after declining to $1.3793, the weakest since November 2011.

China’s seven-day repurchase rate surged 47 basis points, or 0.47 percentage point, to 4.05 percent, according to a weighted average compiled by the National Interbank Funding Center. That was the biggest advance since July 29. The People’s Bank of China has suspended selling reverse-repurchase contracts since Oct. 17, leading to a net withdrawal of 44.5 billion yuan ($7.31 billion) from the financial system last week.

Stocks Decline

The MSCI Asia Pacific Index of shares slid 0.8 percent and the Stoxx Europe 600 Index declined 0.6 percent.

The yen has advanced 0.7 percent in the past month, according to Bloomberg Correlation-Weighted Indexes that track 10 developed-nation currencies. The euro rose 1.3 percent, while the dollar weakened 0.9 percent.

“Liquidity is getting squeezed after China stopped adding funds to market,” said Kengo Suzuki, chief currency strategist at Mizuho Securities Co. in Tokyo. “The yen is being bought in a risk-off trade as equities decline.”

The yen tends to strengthen during periods of financial and economic turmoil because Japan isn’t reliant on foreign capital to fund its deficits.

New Zealand’s dollar slid 1.3 percent to 84.03 U.S. cents, the biggest decline since Aug. 21. Australia’s currency fell 0.7 percent to 96.44 U.S. cents.

The Canadian dollar fell 0.4 percent to C$1.0331 per U.S. dollar after reaching C$1.0332, the weakest since Oct. 17.

The Bank of Canada will keep its benchmark interest rate at 1 percent today, according to a Bloomberg survey of economists. 


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