Breakaway yen keeps dollar under the cosh

Synopsis

In the current foreign exchange landscape, the US dollar is experiencing challenges from the surging yen, resilient yuan, and steady Australian dollar. As traders keep a watchful eye on forthcoming job and inflation statistics from the US, there’s a renewed sense of hope concerning global economic growth.

A resurgent yen, runaway Aussie and steadily rising yuan had the dollar under pressure on Thursday and drifting toward a weekly drop, as investor focus turned to the next batch of U.S. labour and inflation data.

A stronger-than-expected U.S. jobs report overnight briefly lifted the greenback. But traders are taking recent signs of U.S. economic resilience as cues for a broader brightening in global growth and are laying bets on Japan as a likely winner.

The ‌yen is up ⁠more ⁠than 2.6% since Prime Minister Sanae Takaichi's Liberal Democratic Party swept to a landslide victory at Sunday's election and a mood shift ​seems to be afoot as markets set aside fears about spending to focus on growth.

Against the dollar, the yen ​traded as strong as 152.55 on Wednesday, before steadying slightly below that at 153.05 per dollar on Thursday. The rebound is nascent - since the yen has been declining for years - but it has been big enough ​to turn heads in the market.

"It's Japan buying," said Naka Matsuzawa, ⁠chief strategist ‌at Nomura Securities in Tokyo, with the yen - rather than the euro - turning ​into the favoured ​avenue for investing outside the U.S.

"Foreigners are buying both stocks and bonds," he said.

"With ⁠a stronger government, the market hopes for higher growth."

Yen gains could ​easily accelerate, analysts said, if it broke past resistance around 152 per ​dollar, or even the 200-day moving average at 150.5. It has also made headway against crosses, rising 2% on the euro in two sessions and breaking to the strong side of a 50-day moving average.

Overnight data showed U.S. job growth unexpectedly accelerated in January and the unemployment rate fell to 4.3%. A survey published earlier in the month showed a surprise rebound in U.S. factory activity in January.

Thursday morning moves ‌were fairly small, but the Australian dollar was above 71 cents and creeping back towards a three-year top after the central bank governor said the board would hike rates ​again if inflation ​becomes entrenched.

The euro was ⁠firm at $1.1875, sterling held at $1.3628 and the kiwi at $0.6052.

The other major mover on the dollar in recent weeks has been China's yuan, which has been a steady gainer on the back of booming exports and hints ​from authorities that China may tolerate a stronger currency.

Corporate demand ahead of the Lunar New Year holiday helped it to a 33-month top of 6.9057 per dollar on Wednesday and in offshore trade on Thursday it was a fraction firmer still at 6.9025.

This week the U.S. dollar index is down 0.8% to 96.852. In terms of potential catalysts, U.S. jobless claims figures are due later on Thursday and January inflation data is due on Friday.

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