Increasing demand higher yielding assets affects Yen

06-10-2009 13:34

The Japanese Yen fell versus more profitable assets and against main currencies on the back of the global recession weakening and due to increasing confidence among investors, which stimulated risk appetite. The Canadian Dollar continued to rally while Canada’s major trading partner, the US, indicates that its economy is recovering.

Safe refuge for times of uncertainty and crisis

Since the global slump showed the first indications of recovery in April, the Yen has declined during several sessions, while it is considered as a safe-haven currency during critical periods. In the fourth quarter of 2008 the Japanese Yen lost most of the gains obtained during the most critical period of the recession. The Pound Sterling rose considerably versus the Japanese Yen due to the UK political situation which appears more stable. An industry report proved that the consumer confidence improved on which the Australian Dollar rose against the Yen.

Important downtrend

According to analysts, safe-haven assets such as the JPY and CAD could face a significant downtrend due to increasing risk appetite, which stimulates emerging currencies like the KRW and commodity-associated assets like the AUD. Specialists expect the Yen to remain weak during the following months. Despite a possible recovering Japanese economy it is not likely that the Yen will continue its high levels, given that investors’ outflow towards more profitable positions overseas are normally much higher.

Strongest bullish pattern in decades

The Canadian Dollar has been profiting from numerous global aspects which stimulate it to create the most powerful bullish pattern, for the first time since decades, versus the major currencies. The demand for oil increased in April and with Canada being one of the major oil exporters, the Canadian Dollar is rising, also stimulated by the rally in the equity markets, which improved the demand for the Loonie. Risk appetite in stock markets has been boosted by indications that the Asian economy recovers and due to rumors about the American interest rate policy, which results in the ideal situation for the Canadian Dollar to increase even more.

Most favorable scenario

Analysts believe that the current situation of the Canadian Dollar could be the most advantageous in years as the increasing demand for oil fuels the American economy. Most probably the Canadian Dollar will increase even further if the US recession is able to bottom swiftly. Rumors of a possible interest rate increase by the FED are already stimulating the Loonie.