The Yen came close to a five-year low against the greenback as the Federal Reserve readies to start trimming stimulus, while the Bank of Japan opted to continue with its unprecedented monetary easing program. The Yen dipped as the Nikkei rallied.
Demand for Safety Declines
The Yen extended losses, coming within 0.2 percent of a five-year low against the U.S. currency as the Nikkei concluded the trading day above 16,000 for the first time in more than six years, dampening appeal for harbor currencies. The Yen remained weak as the U.S. Dollar surged upon the release of positive economic data which indicated that orders for durable goods surged while new home sales beat prior estimates. According to the Commerce Department, sales of new homes came in at a seasonal 464,000 units last month, while analysts expected sales to reach 440,000. U.S. durable goods orders went up by 3.5 percent in the month of November, beating predictions for a 2 percent increase. Core durable goods not counting items for transportation rose by a seasonal 1.2 percent in the same month, surpassing the forecast 0.6 percent hike. Economists say that orders for capital goods usually indicate how the private sector assesses the state of the economy. And with a jump of 4.5 percent, it denoted optimism which translated into greater business investments. Furthermore, shipments of capital goods posted at 2.8 percent, signaling economic growth. Despite subdued trading because of Christmas, the greenback was supported by speculation that the upcoming releases will show a drop in unemployment claims.
In other Forex news, the Canadian Dollar depreciated for the first time in almost one week on the possibility that should the U.S. economy continue to show signs of improvement, the Federal Reserve may accelerate the reduction of stimulus. The Bank of Canada, however, may adhere to the current monetary policies. The Loonie fell versus its U.S. counterpart as the yield differential between U.S. and Canadian government assets widened by the most since 2010, and it remained to the downside as metrics denoted superb increases in the orders of durable goods. According to economists, the Loonie is expected to sustain a further depreciation especially if the central bank decides to ease policy to avert disinflation. Canada’s exchange rate climbed on reports denoting expansion for gross domestic product. But the central bank indicated that it will focus on the level of inflation which has stayed below the set target for the last eight weeks. The Loonie slumped to a three-year low after CPI posted a hike of 0.9 percent.