NEWS / Foreign Exchange

Daily FX Commentary

Global market trends will tend to remain the dominant short-term influence. The yen will gain support from an increase in risk aversion with much reduced confidence in using the yen as a funding currency for carry trades.        

The Japanese currency secured fresh support in New York on Friday as Wall Street came under strong selling pressure. The yen strengthened to 114.65 against the dollar and three-week highs beyond the 164.0 level against the Euro.

The sharp drop for US stocks increased risk aversion and there was also renewed fear over credit risk in the markets with major-market credit risk indicators rising to the highest level since late July. This combination will curb capital outflows from Japan and also provide important defensive yen support. 

At the weekend meetings. G7 members increased pressure on the Chinese government to let the yuan strengthen at a faster pace and the on-going pressure will also provide some wider Asian currency support. Continued resistance to a significant policy shift by Chinese officials, would tend to lessen the potential for yen gains, although risk conditions may dominate if global equity markets continue to lose ground.

Weak Asian stock markets strengthened the yen to 113.40 against the dollar on Monday before a retreat to 114.10 as retail yen selling increased and there was some recovery in Asian stock markets. There will be further caution over global risk which will provide background yen support with the yen strengthening again in European trading. The yen strengthened to a six-week high against the Euro at near 164.30.