Japan yen sink to its highest level in nearly three months

Japan yen sink to its highest level in nearly three months

On 27 Sept. Reuters - The risk-sensitive yen sank to its highest in nearly three months on Monday, while the risk-sensitive Australian dollar resumed from an almost one-month low as fears of widespread contagion from China Evergrande Group receded

The yen also fell as higher U.S. yields attracted Japanese investment money, while rising commodity prices helped to attract investor money and profits in Japan.

U.S. yields climbed since the end of July in anticipation of tighter monetary policy, while the dollar hovered in the middle of its range over the past week versus major peers.

The euro traded little changed at $1.1724, largely ignoring developments in German elections on the weekend, with the Social Democrats projected to narrowly defeat the CDU conservative bloc.

The Federal Reserve announced on Wednesday that it will likely begin to cut its monthly bond purchases as soon as November and flagged interest rate increases may follow sooner than expected, with half of the Federal Open Market Committee members projecting a hike next year.

USD is likely to remain caught in the crosscurrents of a more hawkish FOMC and fading concerns around a possible Evergrande default, Commonwealth Bank analysts wrote in a client note.

Nevertheless, the risks are noted for a firmer USD, with renewed Evergrande worries unlikely to trigger the level of market volatility of last week.

Concerns that China's second biggest developer Evergrande could default on its $305 Billion in debt has overshadowed trade in recent weeks, but some of those contagion fears are receding.

The People's Bank of China injected a net $100 billion yuan $15.47 billion into the financial system on Monday, adding to the net 320 billion yuan last week, the most since January.

Several local governments in China have set up special accounts for Evergrande property projects to protect funds being deviated from being held, media outlet Caixin reported on the weekend.

The yen weakened as far as 110.81 per dollar, matching a low of July 7, before trading little changed to 110.67.

The benchmark 10-year U.S. Treasury yield touched 1.466% for a second day on Monday, the highest since July 2 at the time of the new transaction (note I)?

In a client note, The correlation between U.S. bonds yields and USDJPY paid up, Chris Weston, head of research at the brokerage Pepperstone in Melbourne, written in a newsletter.

USDJPY looks a little stretched, so I d be wary to chase here, but I would be looking for a re-test of 110.50 as a potential support zone within what is a progressively bullish trend. The Aussie fell 0.37% to $0.7282, up from $0.72205 a week ago, its lowest since Aug 24.

The Norwegian crown gained about 0.4% and touched 8.5537 per dollar for the first time since July 6th.