Strong Yen threatens economy – Loonie suffers from rising risk aversion

Strong Yen threatens economy – Loonie suffers from rising risk aversion

11-28-2009 10:01

During the first trading sessions of this week, the Japanese Yen reached a 14-year record high against the US Dollar. Initially the central bank of Japan wasn’t concerned about the strength of the Yen, but at the end of this week’s trading session the BoJ feared that the high rates of the Yen may frustrate the economic recovery and damage the economy.
The Loonie, an informal term for the Canadian Dollar, rose strongly against the US Dollar at the start of this week’s trading session, as it dropped Thursday as a result of rising risk aversion in the Forex market. Dubai World attempts to reschedule its debt obligations, which boosts risk aversion.

Strong Yen

This week’s trading session, the Yen reached a 14-year record high against the Greenback. Ultimately, Japan’s Minister of Finance, Hirohisa Fujii, declared that measures are ahead to manage the Yen’s rally, as he also could consult central bankers from the US and Europe to intervene in foreign-exchange markets, impacting the Yen negatively and pushing its rate down after the promising start of this week’s trading session.
The Finance Minister also confirmed that the G7 could come up with measures to prevent discrepancy in the Forex market, indicating that the Yen’s rally is not likely to last, bringing risk aversion to high levels in foreign-exchange markets at the end of this week’s trading session.

Rigorous measures

The Japanese Yen erased its gains, as it previously touched the level of 85 per Dollar, which is an important psychological level. Currency analysts expect that the central bank of Japan will take more rigorous measures if the Yen’s rally continues. The Yen has been rising mainly against the US Dollar, which has become less attractive worldwide in the last few months.

Loonie suffers

Dubai World is trying to delay its debt obligations, diminishing the positive sentiment as well as risk seeking. This impacted particularly equities and commodities worldwide, which have a major influence on the Loonie. The Canadian Dollar erased all its previous gains of this week and will probably end this week’s trading session with a weekly loss against the Greenback. The rate of a barrel crude oil dropped to $72.50, as it previously this week traded near $80, impacting the Canadian Dollar firmly, as the US Dollar pared its earlier losses against the Loonie and also versus other commodity currencies worldwide, given the fact that energy commodities are one of the major Canadian export products to the United States.

Rising risk aversion

The Canadian Dollar was not only hit by global pessimism but also by figures demonstrating a rising current account deficit, forcing the Loonie down, according to currency analysts. Risk aversion levels will be determined by the economic events as a result of Dubai World’s debt, which will finally lead to a further declining rate of the Canadian Dollar in the near term.