Dollar jumps vs yen after Moody's cuts Japanese credit rating

The New Zealand dollar jumped against the yen after credit ratings agency Moody's Investors Service cut Japan's credit rating,

The kiwi touched 93.45 yen, its highest level since Nov. 21 when it reached a seven-year high of 93.68 yen. The local currency was trading at 93.32 yen at 8am in Wellington, from 92.87 yen at 5pm yesterday. The New Zealand dollar advanced to 78.89 US cents from 78.09 cents yesterday as some investors sold the greenback following its recent gains.

The yen dipped to its weakest level in more than seven years against the US dollar after Moody's downgraded Japan to A1 from Aa3, citing uncertainty over the nation's fiscal deficit-reduction programme and its effect on growth policies. Japan's credit rating is now one notch below China, and four below Germany and the US. The Japanese currency later regained some ground against the greenback on speculation the downgrade may prompt Japan's government to slow its quantitative easing programme which would increase the value of the yen.

"USD/JPY went on a roller coaster ride," Boris Schlossberg, managing director of foreign exchange strategy at BK Asset Management in New York, said in a note. "In issuing its ratings cut Moody's noted that Japan's inflation targeting measures may put pressure on Japanese government bond yields while its growth policy poses risk to debt consolidation adding also that uncertainty persisted over the implementation of structural reforms in the economy colloquially known as the 'third arrow' of Abenomics."

"Although the knee jerk reaction is to always sell the currency after the sovereign debt downgrade the case with the yen is rather unique," Schlossberg said. "Upon further reflection the market may have thought the rebuke from Moody's may temporarily slow down Japan's massive QE programme which would in fact be negative for further USD/JPY gains."

In New Zealand today, the ANZ Commodity Price Index is scheduled for release at 1pm. Traders are awaiting the latest GlobalDairyTrade auction overnight amid speculation continued weakness will cause Fonterra Cooperative Group to cut its forecast payout to farmers next week.

The New Zealand dollar advanced to 92.62 Australian cents from 92.45 cents yesterday ahead of the Reserve Bank of Australia meeting this afternoon where no change to its 2.5 percent benchmark interest rate is expected. Australia also publishes data on residential building approvals for October and the third quarter current account today.

The local currency rose to 63.21 euro cents from 62.71 cents yesterday after a report showed Eurozone manufacturing growth stalled in November and new orders fell at the fastest pace in 19 months despite heavy price cutting. The kiwi was little changed at 50.08 British pence from 50.02 pence yesterday. The trade-weighted index gained to 78.82 from 78.30 yesterday.

(BusinessDesk)