Yen set for best quarter in three years

Singapore - The yen was set for its biggest quarterly gain against the dollar in three years as market turmoil fueled demand for safer assets, overriding prospects that US interest rates will increase by December.

A gauge of the yen versus its developed-nation peers has risen 6.6% this quarter as China’s abrupt devaluation of the yuan last month stoked speculation of a slowdown in the world’s second-largest economy.

Australia’s dollar was the biggest loser as its economy grapples with both the end of a mining investment boom and the deceleration in China, the nation’s biggest trading partner.

“The yen could test ¥119/$ if stocks continue to plunge,” said Masato Yanagiya, head of foreign-exchange and money trading at Sumitomo Mitsui Banking in New York. “Stocks appear to be undergoing a transition and are vulnerable, weighing on risk sentiment.

The yen has risen 2.2% this quarter to ¥119.90/$ as of 07:55, the most since it gained 2.4% during the third quarter of 2012. It weakened the previous four periods.

Daily direction

Japan’s currency slipped 0.1% versus the dollar on Wednesday, the most among developed-market peers, as Asian stocks pared a quarterly loss after shares climbed in New York. A China-led rout has wiped off about $10trn in value from global equities.

Australia’s dollar rose 0.4% advance to 70.14 US cents on Wednesday, trimming its quarterly decline to 9% - still its worst performance since the period ended June 2013.

The Bloomberg Dollar Spot Index, which measures the greenback’s performance against a basket of major peers, was set to complete a 2.7% quarterly advance. The gauge was little changed on the day at 1 212.80.

The dollar remains underpinned as officials from the Federal Reserve, including Chair Janet Yellen, have said in recent days they expect interest rates to rise this year for the first time since 2006.

Futures signal about 40% odds of an increase from near zero rates by year-end. The calculation is based on the assumption that the effective fed funds rate will average 0.375% after the first increase.

“We still think the flows, positioning, policy stance, et cetera, all argue for dollar-yen higher, but these factors are all taking a back seat and swings in risk appetite are dominating everything,” said Adam Cole, London-based head of global foreign-exchange strategy at Royal Bank of Canada.

“Yen has reverted to its traditional status as the markets’ choice safe-haven currency.”

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