Yen Heads for Biggest Two-Day Gain in Three Weeks; Krone Slumps

The yen headed for its biggest two-day advance in three weeks against the dollar as a slump in oil and stocks stoked demand for Japan’s haven assets.

 

The yen climbed to the strongest in nine weeks versus the euro as Greece prepares for an election that the country’s leader said may lead to it exiting the currency union. Norway’s krone slumped to a three-week low as a report showed manufacturing in western Europe’s biggest oil producer shrank. The ruble tumbled as the cost of insuring Russian bonds against default rose to the highest level in almost six years on concern a cut in the nation’s credit rating to junk was imminent.

 

The yen’s gain “is primarily due to the global risk-aversion,” said Alvin T. Tan, a foreign-exchange strategist at Societe Generale SA in London. “Dollar-yen ended the year relatively bid. It’s come off as global equities and bond yields have fallen.” He also pointed to oil prices, “and of course there’s a bit of worry about the Greece thing.”

 

The yen advanced 0.4 percent to 119.18 per dollar as of 7:35 a.m. New York time, extending its gain in the past two days to 1.1 percent, the most since the period ended Dec. 16. Japan’s currency gained 0.8 percent to 141.70 per euro after reaching 141.38, the strongest since Nov. 3. The dollar strengthened 0.4 percent to $1.1889 per euro.

 

Crude oil futures tumbled 5 percent yesterday in New York and slid below $50 for the first time since April 2009. to as low as $48.47 a barrel today. The price fell as much as 3.1 percent more today, set for a fourth day of declines. The MSCI Asia Pacific Index (MXAP) of shares sank 2 percent and the MSCI All-Country World Index slid 0.4 percent, in a fifth day of drops.

Oil ‘Risk’

“We may well see the market entering risk-off mode,” Takeru Kurokawa, an analyst in Tokyo at Ueda Harlow Ltd., which provides margin-trading services, wrote in a note to clients. “Until now, oil price declines were prompting dollar-buying, but now it seems like it’s viewed as a risk.”

 

The yen gained for a third day versus the euro after European Central Bank President Mario Draghi said in an interview with German newspaper Handelsblatt last week that policy makers were ready to act if needed to counter deflation. Greeks head to the polls on Jan. 25 in snap elections triggered after lawmakers failed to choose a president last month.

 

In a Jan. 3 speech in the central city of Larissa, Prime Minister Antonis Samaras said Greece would be driven into default and out of the 19-nation European single currency if the opposition Syriza party wins. Syriza has vowed to increase wages, expand the number of government jobs and persuade the euro area to write off some Greek debt.

Euro-Dollar Forecast

ABN Amro Bank NV cut its year-end forecast for the euro to $1.10 from $1.15 and expects the common currency to drop to parity by the end of 2016, Nick Kounis, the head of macro research based in Amsterdam, wrote in a client note. The performance will be driven by “sluggish” euro-area growth and divergence in monetary policy with the U.S., he wrote.

 

The yen has rallied 5.3 percent in the past month, the best performer of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar gained 3.1 percent, while the euro weakened 0.6 percent.

 

Russia’s currency slipped 2.8 percent to 62.6300 to the dollar, adding to a slide of 8 percent yesterday. The ruble tumbled 41 percent against the dollar last year, its worst performance since 1998, when Russia defaulted on local debt.

Krone, Aussie

Norway’s krone dropped 1 percent to 7.7154 per dollar, having depreciated to 7.7619, the weakest since Dec. 16. The currency slumped 0.7 percent to 9.1794 against the euro.

 

A Norwegian purchasing managers’ index fell to 49.8 in December from 51.4 in November,the Association of Logistics and Materials Management and Danske Bank A/S said today. That missed the 50.5 estimate in a survey of economists. A reading below 50 indicates a contraction.

 

Australia’s dollar jumped as people familiar with the matter said China will speed infrastructure projects valued at 7 trillion yuan ($1.13 trillion). It rose versus all except two of its 16 major counterparts as the people familiar with the matter said China’s government had agreed to accelerate 300 infrastructure projects worth 7 trillion yuan this year. China is Australia’s largest trading partner.

The investment will be in seven industries, including oil and gas pipelines, health, clean energy, transportation and mining, according to the people.

 

The Aussie advanced 0.5 percent to 81.27 U.S. cents, set for the biggest one-day gain since Dec. 30, and earlier was 0.9 percent above yesterday’s close, when it ended at 80.35 cents, the weakest since July 2009.

 

Intercontinental Exchange Inc.’s U.S. Dollar Index, which measures the greenback’s performance against major peers, rose 0.3 percent to 91.628 after rising to 91.775 yesterday, the highest level since December 2005.