The Yen weakens as gains in the Asian markets lead investors to risk

The yen fell against the euro and the dollar as a rebound in Chinese stocks allayed concerns that the global economic recovery is faltering, encouraging investors to buy higher-yielding assets. “The overall trend is clearly for improved risk appetite,” said Mitul Kotecha, head of global foreign-exchange strategy at Calyon in Hong Kong. “That means riskier currencies such as the Australian and New Zealand dollars will strengthen, while safe-haven currencies like the yen and the U.S. dollar will weaken.” The benchmark interest rate is 0.1 percent in Japan, compared with 3 percent in Australia and 2.5 percent in New Zealand, making the South Pacific nations’ assets attractive to Japanese investors seeking higher returns. The AUD/JPY is trading at 78.45 as of 9:00am, London Time.

Canada’s dollar advanced for a second day against its U.S. counterpart as crude oil, the nation’s biggest export, and U.S. stocks reversed earlier losses and rose. The loonie strengthened 21 percent from early March through July, prompting Canadian Finance Minister Jim Flaherty to say on Aug. 4 that unspecified “steps” may be taken to slow its appreciation. The currency posted two straight weekly losses this month before gaining 1.2 percent over the past two days. The Canadian consumer price index decreased 0.9 percent in July from a year earlier on lower gasoline prices, Statistics Canada said today in Ottawa. The median forecast of 23 economists in a Bloomberg News survey was for a drop of 0.8 percent. The USD/CAD is currently trading at 1.0955 as of 9:08am, London Time.

Record euro zone government borrowing this year will be surpassed in 2010 despite growing economic optimism, as issuers rebalance portfolios away from Treasury bills and face ongoing, recession-busting expenditure. Last week, the two largest euro zone economies, Germany and France, reported a surprise increase in gross domestic product. Improving economies after the two-year global credit crisis mean higher tax receipts and a chance to rely less on borrowing funds by issuing bonds. But economists reckon that as recession fades, the invoice for the largest-ever peacetime debt issuance will be mostly still unpaid and economies too fragile for tax rate hikes. The EUR/USD is currently trading at $1.4240 as of 9:20am, London Time.

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