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The Pound Sterling Hits an Eleven Week Low

“The pound approached an 11-week low against the euro amid speculation the Bank of Englandwill maintain stimulus measures that typically debase the currency.

Sterling was within one U.S. cent of the weakest in almost four months after U.K. policy makers led by Governor Mark Carney signaled last week they will keep interest rates at a record low for longer than investors anticipated. Britain’s currency slumped below $1.49 to the lowest in more than three months last week. U.K. government bonds were little changed. Economists predict a report tomorrow will will show industrial production expanded in May.

“The Bank of England want to keep a cautious outlook and that should keep the pound on the back foot,” said John Hardy, head of foreign-exchange strategy at Saxo Bank A/S in London. “If the data begins to turn the wrong way again you have a compelling case for more pound weakness.”

The U.K. currency fell less than 0.1 percent to 86.21 pence per euro at 12:01 p.m. London time after depreciating to 86.33 on July 4, the weakest level since April 17. Sterling traded at $1.4907 after dropping to $1.4858 on July 5, the lowest since March 12.

The U.K. recovery “remains weak” by historical standards and rising market borrowing costs pose a threat to the expansion, the central bank said in a statement after its July 3-4 meeting. The nine-member Monetary Policy Committee kept its benchmark interest rate at a record-low 0.5 percent and its asset-purchase target at 375 billion pounds.

Pound’s Decline

The pound has weakened 2 percent this year, according to Bloomberg Correlation-Weighted Indexes that track 10 developed-nation currencies. The dollar strengthened 7.9 percent and the euro gained 4.9 percent….”

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The Greenback Hits a 3 Year High Going Into Fed Speak

“The Dollar Index rose to a three-year high before Federal Reserve Chairman Ben S. Bernanke speaks this week amid speculation signs of U.S. economic growth will encourage the central bank to slow stimulus.

The dollar climbed to the strongest in five weeks versus the yen as the Fed prepares to release the minutes of its June meeting on Wednesday at which Bernanke said policy makers may begin slowing bond purchases. A U.S. report last week showed payrolls rose in June. Sweden’s krona weakened after a report showed a manufacturing slump in the economy deepened. The euro rose against most of its major counterparts amid optimism Greece will get the next aid payout…”

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The Aussie Dollar Hits a Three Year Low

“Australia’s dollar traded near its lowest in almost three years versus the greenback on speculation the Reserve Bank may cut interest rates as soon as next month.

The Aussie held a three-week drop before data this week forecast to show the job market stagnated in June. The South Pacific nation’s yield advantage over the U.S. is deteriorating as the Federal Reserve considers scaling back its quantitative easing program this year. New Zealand’s kiwi dollar rose after a report showed house prices gained last month.

“It’s inevitable that Aussie pushes lower,” said Robert Rennie, the chief currency strategist atWestpac Banking Corp. (WBC) in Sydney. “Lower rates are clearly required.”

The Australian dollar slid 0.2 percent to 90.51 U.S. cents as of 4:47 p.m. in Sydney from July 5. It reached 90.37 on July 3, the lowest since September 2010. New Zealand’s dollar climbed 0.2 percent to 77.24 U.S. cents, rebounding from a 1.6 percent slide on July 5.

The yield on Australia’s 10-year government bond rose eight basis points, or 0.08 percentage point, to 3.9 percent, after earlier touching 3.998 percent, the highest since June 24.

The top forecaster of the Australian dollar over the past year predicts a further slump, capping the worst annual loss since the 2008 global financial crisis. Canadian Imperial Bank of Commerce expects it to fall to 87 U.S. cents by Dec. 31, for a 16 percent decline this year. The median estimate of 53 economists surveyed by Bloomberg is 91 U.S. cents.

‘Good Thing’

The Aussie’s depreciation so far this year “does provide some support to manufacturers, and exporters in particular, and that’s a good thing,” Australian Treasurer Chris Bowen said in an interview broadcast by Sky News yesterday. It’s dropped 13 percent this year. “The terms of trade have fallen since the budget. Against that, the Australian dollar has come down, so there’s a countervailing impact.”…”

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The Yen Gains on Safety, The Euro Falls, and The Aussie Hits Multi Year Lows

“The euro fell the most in two weeks against the yen as Portugal’s bonds slumped after two ministers resigned from the government, reigniting speculation Europe’s debt crisis is worsening.

The 17-nation currency dropped for a second day against the dollar as borrowing costs also increased in Spain and Italy. The yen strengthened against all of its 16 major counterparts as declines in stocks boosted demand for Japan’s currency as a haven. Australia’s dollar fell to the weakest since September 2010 after Reserve Bank Governor Glenn Stevens said the economy “will probably get” a lower currency if needed. The pound rose after U.K. services expanded……

The euro dropped 1 percent to 129.30 yen at 6:53 a.m. in New York, the biggest decline since June 14. The shared currency fell 0.2 percent to $1.2958 after sliding 0.7 percent yesterday. The yen strengthened 0.8 percent to 99.79 per dollar.

Portugal’s 10-year bond yield jumped above 8 percent for the first time since November after Prime Minister Pedro Passos Coelho told voters in a televised speech from Lisbon late yesterday that he’s trying to hold his government together.

Second Resignation

Portuguese Foreign Affairs Minister Paulo Portas, leader of junior coalition party CDS, quit yesterday in protest at the government’s budget policy. Portas was the second minister to resign this week after finance chief Vitor Gaspar stepped down, saying his credibility had been compromised by the government’s failure to meet budget targets set by the European Union.

The euro also weakened after a report showed services industries in the region shrank at a faster pace in June than initially estimated.

An index of services activity based on a survey of purchasing managers was 48.3 last month, Markit Economics said. That’s less than an initial estimate of 48.6 on June 20 and below the level of 50 that divides expansion from contraction.

The euro has still gained 4.6 percent this year, according to Bloomberg Correlation-Weighted Indexes that track 10 developed-nation currencies. The dollar gained 6.7 percent, the best performer, and the yen tumbled 8.7 percent.

Aussie Drops…”

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The Greenback Nears New Highs Against Major Currencies

“The dollar climbed to the highest in almost a month against the yen as signs of improvement in the U.S. economy buoyed speculation the Federal Reserve will start scaling back asset purchases this year.

The greenback approached the strongest level in almost a month versus the euro before a report economists said will show factory orders gained by the most in three months. Data this week is forecast to indicate a drop in the unemployment rate as companies in the world’s biggest economy continued to add jobs. Australia’s dollar weakened as the Reserve Bankflagged declines in the currency after keeping borrowing costs unchanged at a meeting today.

“The dollar is likely to stay underpinned if data continues to improve,” said Roberto Mialich, a senior currency strategist at UniCredit SpA (UCG) in Milan. “We see scope for the Fed to be able to start tapering the policy accommodation this year before Fed Chairman Bernanke departs early next year.”

The dollar was little changed at 99.67 yen as of 9:07 a.m. in London after reaching 99.91 yen, the most since June 5. The U.S. currency was at $1.3058 per euro. It touched $1.2985 on June 26, the strongest level since June 3. Europe’s shared currency was little changed at 130.17 yen after climbing to 130.64, the highest since June 11. The Australian dollar dropped 0.5 percent to 91.92 U.S. cents.

The U.S. Commerce Department will say orders placed with factories climbed 2 percent in May following a 1 percent gain in the previous month, according to the median estimate of economists surveyed by Bloomberg News. If confirmed, that would be the biggest advance since February.

Job Gains….”

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The Aussie Dollar Falls as the RBA Keeps Key Interest Rates Unchanged

“Australia’s central bank left its key interest rate at a record low, saying a slide in the currency may continue. The local dollar declined.

Governor Glenn Stevens and his board kept the overnight cash-rate target at 2.75 percent, theReserve Bank of Australia said in a statement today in Brisbane, as predicted by 25 of 28 economists surveyed by Bloomberg News. The Aussie “remains at a high level” and may “depreciate further over time, which would help to foster a rebalancing of growth,” Stevens said.

A 12 percent decline in the Australian dollar last quarter has helped buoy manufacturing sentiment, easing pressure on the governor to cut rates again. Policy makers lowered borrowing costs by 2 percentage points since late 2011, seeking to shift growth toward employment-intensive industries such as construction as mining investment wanes.

“The RBA is in no hurry to move interest rates and will wait for the data to push them into action,” said Joshua Williamson, a senior economist at Citigroup Inc. in Sydney. “They’re not worried about inflation, despite the fall in the exchange rate, so if needed that will allow them to cut rates.”

The currency dropped, trading at 91.69 U.S. cents at 3:15 p.m. in Sydney, from 92.21 cents before the RBA’s statement. The nation’s three-year bond yield fell to 2.77 percent from 2.79 percent before the RBA’s decision.

Recent Data…”

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The Aussie Dollar Hits 3 Year Lows, Bond Yields Rise

“Australia’s dollar slid to the lowest in almost three years after a gauge of Chinese manufacturing contracted and the Federal Reserve signaled an exit from monetary easing. New Zealand’s bond yields surged the most since the collapse of Lehman Brothers Holdings Inc.

The Aussie slid for a fifth day, following the biggest decline since November 2011 yesterday, after Fed Chairman Ben S. Bernanke signaled the central bank could reduce monetary stimulus that tends to weaken the greenback. New Zealand’s dollar dropped for a fifth day after data showed the nation’s economic growth slowed more than economists forecast.

“The link between the China growth story and the Aussie dollar remains crucial,” said Michael Judge, a Sydney-based dealer at OZForex Pty Ltd., an online foreign-exchange company. “We all know the only way interest rates are heading in this country at the moment is south, and obviously weakening China growth doesn’t help that prognosis.”

The Australian dollar fell 0.7 percent to 92.29 U.S. cents as of 4:55 p.m. in Sydney from yesterday, when it tumbled 2 percent. It earlier touched 92.25, the lowest since Sept. 10, 2010. The New Zealand dollar weakened 0.8 percent to 78.33 U.S. cents after sliding 1.1 percent yesterday.

The yield on Australia’s benchmark 10-year government bond rose as much as 23 basis points to 3.65 percent, the highest since March 15. The extra yield it offers over 10-year U.S. debt yesterday narrowed to 107 basis points, or 1.07 percentage point, the least since November 2008. Commonwealth Bank of Australia (CBA) predicts the gap could shrink to the lowest since 2001.

China Slowdown…”

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The Greenback Soars Creating a Carry Trade Pitfall

“The dollar surged against counterparts worldwide ranging from Australia’s currency to Turkey’s lira as the Federal Reserve’s signal it is getting closer to reducing monetary stimulus pushed volatility to the highest in a year and spurred losses in carry trades.

The U.S. currency strengthened versus all of its 16-most-traded peers and Deutsche Bank AG’s G10 FX Carry Basket index fell to the lowest level since October as Fed Chairman Ben S. Bernanke yesterday outlined the case for reduced monetary stimulus this year if the U.S. economy keeps improving. India leads carry losses among the 31 most-traded currencies versus the dollar this month with a 4.8 percent decline while its central bank likely intervened to protect the rupee.

“QE3 is now likely to end in the middle of next year so we’ve had an initial rise in the dollar,” saidGavin Friend, a currency strategist at National Australia Bank Ltd. in London, referring to quantitative easing, or QE. “People are reading this as the end the cheap money that’s gone intoemerging markets from the U.S. and Europe. If today’s U.S. data is reasonable, the dollar will continue to rally against currencies like the Aussie in particular.”

The dollar rose 0.6 percent to $1.3211 per euro at 8:01 a.m. in New York, extending the biggest two-day gain since July 6, 2012. The U.S. currency advanced 1.5 percent to 97.86 per yen. TheJapan’s currency fell 0.9 percent to 129.39 per euro.

Dollar Measure….”

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The Aussie Dollar Continues Scrape the Bottom of the Barrel

“The Australian dollar remained lower following a three-day loss against the greenback before theFederal Reserve concludes a policy meeting today.

The Aussie fell to the lowest in almost a week ahead of a news conference by Fed ChairmanBen S. Bernanke that could provide clues on when policy makers will begin scaling back quantitative easing that tends to debase the U.S. currency. New Zealand’s kiwi dollar advanced after data showing a narrowing in the nation’s current-account deficit and the first gain in whole-milk powder prices in two months.

“I think the message is very much nervous, choppy price action going into Bernanke,” saidRobert Rennie, a Sydney-based chief currency strategist at Westpac Banking Corp. (WBC)“Aussie hasn’t traded well. I do think though, that we’re showing some signs of building a base in this 94, 94.50 U.S.-cent region.”

The Australian dollar was little changed at 94.84 U.S. cents as of 4:42 p.m. in Sydney from yesterday, when it dropped 0.6 percent. It earlier touched 94.35, the lowest since June 13. The kiwi rose 0.2 percent to 80.03 U.S. cents, following a 1.6 percent slide over the previous three sessions….”

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The Greenback Falls Before Fed Speak

“The dollar fell against the majority of its most-traded peers amid bets Federal Reserve Chairman Ben S. Bernanke will signal the central bank plans to maintain bond purchases that risk debasing the currency.

Europe’s 17-nation currency traded at almost its highest level against the dollar since February and the yen rallied before the U.S. central bank also releases revised economic forecasts. Sweden’s krona rose to a two-month high versus the dollar after the jobless rate unexpectedly fell in May and a government research institute said the central bank won’t cut its main lending rate further.

“The market is expecting Bernanke to express some discomfort with the rise in long-term interest rates and is probably looking for something relatively dovish from the press conference,” said Adam Cole, head of Group-of-10 currency strategy at Royal Bank of Canada in London. “The market is setting itself up for the big event of the day. In the long-run, I expect the yen to strengthen versus the dollar.”

The dollar fell 0.3 percent to 95.08 yen at 7:57 a.m. in New Yorkafter weakening 1.1 percent in the previous two days. Japan’s currency rose 0.2 percent to 127.39 per euro. The euro was little changed at $1.3399 after appreciating to $1.3416 yesterday, the highest since Feb. 13.

Fed News….”

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The Yen and The Aussie Dollar Fall Before The Fed Meeting

“The yen weakened for a second day against the dollar before the Federal Reserve starts a two-day meeting today that may provide more information about when the central bank will start to reduce bond purchases.

Japan’s currency declined versus all except one of its 16 major counterparts after the central bank estimated the current-account balance increased to a record amid unprecedented monetary stimulus. The euro climbed to a four-month high against the dollar as German economic sentiment improved more than economists forecast. Australia’s dollar weakened for a third day after the Reserve Bank indicated the currency may fall further.

“We’re looking for the dollar to resume its uptrend versus the yen,” said Ian Stannard, head of European foreign-exchange strategy at Morgan Stanley in London. “The market can take advantage of any suggestions by the Fed that they are close to reducing bond purchases. The yen should remain under pressure across the board.”

The yen declined 0.9 percent to 95.33 per dollar at 7:07 a.m. in New York after depreciating 0.2 percent yesterday. Japan’s currency weakened 0.9 percent to 127.48 per euro. The euro gained 0.1 percent to $1.3374 after rising to $1.3399, the highest level since Feb. 20.

The JPMorgan Global FX Volatility Index increased to 10.35 percent from 10.25 percent yesterday after climbing to a one-year high of 11.43 percent on June 13. The average in the past 12 months is 8.65 percent.

‘Remain Vague’….”

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Emerging Market Currencies Face Risk Off Going Into the Fed Meeting

“Emerging-market currencies weakened, led by India’s rupee and Russia’s ruble, as investors awaited the outcome of a Federal Reserve meeting. Most developing-nation stocks rose as Philippine and Indonesian equities rallied.

The rupee headed for a record-low close against the dollar and the ruble slid 1 percent. TheBloomberg-JPMorgan Asia Dollar Index (ADXY), which tracks the region’s 10 most-traded currencies, slid to the lowest level since Sept. 12. The Federal Open Market Committee starts a two-day policy meeting today, a month after Chairman Ben S. Bernanke said stimulus efforts could be scaled back if the employment outlook shows sustainable improvement.

“The market is not sure what exactly the FOMC will say but is adjusting to the risk of an announcement of early tapering of quantitative easing,” Gaelle Blanchard, senior emerging-market strategist at Societe Generale SA in London, said by e-mail.

About three stocks advanced for every two that fell in the MSCI Emerging Markets Index, which lost 0.4 percent to 953.76 at 12:45 p.m. in London. SM Investments Corp. (SM) drove the Philippine benchmark gauge to the largest three-day gain since September 2011. Indonesian equities rallied after the nation’s parliament approved a revised budget.

The rupee sank 1.5 percent versus the dollar and the Malaysian ringgit slid 0.7 percent. The Bloomberg-JPMorgan Asia Dollar Index lost 0.3 percent. Hungary’s forint weakened 1 percent versus the euro. South Africa’s rand dropped 0.7 percent, extending declines in the past month to 6.3 percent.

Turkey Raids…”

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The Aussie Dollar Bounces on Expectations Recent Decline Overdone

Australia’s dollar rose, extending its first weekly gain against the greenback in six, amid speculation record bets on its decline may be overdone.

The Aussie rebounded from its biggest drop in a week before minutes tomorrow from theReserve Bank of Australia that could point to the timing of a potential interest-rate cut. The Australian and New Zealand dollars climbed against their 15 major peers before a Federal Reserve meeting this week that may provide clues on when policy makers will begin curtailing quantitative easing. The kiwi dollar touched the highest this month against its Australian counterpart after New Zealand’s consumer confidence climbed to the most in three years.

“Positioning is at record extremes” in the Australian dollar, said Sue Trinh, a senior currency strategist at Royal Bank of Canada in Hong Kong. Trading “should remain largely choppy, but there’s a risk of potential short-covering,” she said. A short position is a bet an asset’s price will fall.

The Australian dollar rose 0.5 percent to 96.21 U.S. cents at 5:02 p.m. in Sydney from June 14, when it dropped 0.7 percent, the most since June 7. It gained 0.8 percent last week. The Aussie strengthened 1.7 percent to 91.55 yen.

The New Zealand dollar advanced 0.6 percent to 80.94 U.S. cents, and gained 1.5 percent to 76.97 yen. It was little changed at NZ$1.1894 per Australian dollar after earlier gaining to NZ$1.1850, the highest since May 29.

Record Shorts…”

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REALLY? Traders Said to Rig Currency Rates to Profit Off Clients

“Traders at some of the world’s biggest banks manipulated benchmark foreign-exchange rates used to set the value of trillions of dollars of investments, according to five dealers with knowledge of the practice.

Employees have been front-running client orders and rigging WM/Reuters rates by pushing through trades before and during the 60-second windows when the benchmarks are set, said the current and former traders, who requested anonymity because the practice is controversial. Dealers colluded with counterparts to boost chances of moving the rates, said two of the people, who worked in the industry for a total of more than 20 years.

The behavior occurred daily in the spot foreign-exchange market and has been going on for at least a decade, affecting the value of funds and derivatives, the two traders said. The Financial Conduct Authority, Britain’s markets supervisor, is considering opening a probe into potential manipulation of the rates, according to a person briefed on the matter.

“The FX market is like the Wild West,” said James McGeehan, who spent 12 years at banks before co-founding Framingham, Massachusetts-based FX Transparency LLC, which advises companies on foreign-exchange trading, in 2009. “It’s buyer beware.”

The $4.7-trillion-a-day currency market, the biggest in the financial system, is one of the least regulated. The inherent conflict banks face between executing client orders and profiting from their own trades is exacerbated because most currency trading takes place away from exchanges.

Benchmark Investigations…”

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The Aussie Dollar Bounces on Oversold Conditions

Australia’s dollar rebounded from the lowest level in almost three years as a technical indicator signaled recent selling was overdone.

The Aussie snapped a three-day slide after tumbling 9.2 percent since the end of March, set for the biggest quarterly decline since the period ended September 2011. The currency advanced after a private report showed that Australia’s consumer confidence recovered in June after slumping the most in 17 months. New Zealand’s kiwi dollar climbed.

There are “probably quite a few people who’ve got short the Australian dollar near the lows yesterday, and they’re now suffering a painful squeeze,” said Ray Attrill, the global co-head of foreign-exchange strategy in Sydney at National Australia Bank Ltd. “At the moment, there’s the potential for a squeeze up to 95 or 96” U.S. cents, he said. A short position is a bet that an asset’s price will fall.

The Australian currency gained 0.4 percent to 94.65 U.S. cents as of 5:05 p.m. in Sydney from yesterday, when it touched 93.26, the lowest since Sept. 14, 2010. It earlier climbed as much as 0.8 percent. The New Zealand dollar rose 0.4 percent to 79.02 U.S. cents after earlier rallying as much as 0.6 percent….”

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Dollar Volatility Erodes Currency Hedge Fund Profits

“Some investors make their biggest money in times of market volatility, but that wasn’t the case for currency hedge funds last month.

They suffered from the dollar’s moves up and down, The Wall Street Journal reports.

The Parker Global Currency Managers Index, which tracks the returns of 17 funds in which Parker Global Strategies invests, dipped 0.58 percent last month, according to preliminary data from the company.

That compares with a 2.1 percent gain for the Standard & Poor’s 500 Index.

The dollar index, which measures the currency against six major counterparts, moved up and down between 81 and 85 in May. That’s a trading band of 5 percent from bottom to top.

The volatility has come among uncertainty about when the Federal Reserve will begin tapering its quantitative easing policy….”

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The Aussie Dollar Hits the Skids as Home Loans Grow Less Than Half Expectations

Australia’s dollar fell to the lowest in almost three years versus the greenback after home-loan approvals grew at the slowest pace in three months, boosting the case for further cuts to borrowing costs.

Australia’s currency slid for a third day amid speculation the Federal Reserve will reduce stimulus this year, narrowing Australia’s interest-rate advantage. The Aussie and New Zealanddollars dropped against the yen after the Bank of Japan kept monetary policy unchanged, disappointing investors who had expected it to introduce measures to stem market volatility. The kiwi dollar was set for its lowest close in a year.

“Housing is the one area most likely to make up for the mining investment downturn, and it’s disappointed,” said Joseph Capurso, a Sydney-based foreign-exchange strategist atCommonwealth Bank of Australia. “You’ve got to say that the Aussie’s going to keep on falling.”

Australia’s dollar slid 1.1 percent to 93.61 U.S. cents as of 5:18 p.m. in Sydney after touching 93.54, the lowest since September 2010. New Zealand’s currency fell 0.9 percent to 78.34 U.S. cents, set for its weakest close since June 2012. The Aussie dropped 1.6 percent to 92.02 yen, while the kiwi tumbled 1.4 percent to 76.94 yen.

Australian home-loan approvals rose 0.8 percent in April from the month before, the smallest increase since January. Economists surveyed by Bloomberg News forecast a 2 percent rise. March’s gain was revised to 4.8 percent from 5.2 percent.

Reserve Bank of Australia Governor Glenn Stevens and his board reduced the overnight cash-rate target to a record 2.75 percent last month. A benign inflation outlook gave them scope to help industries including construction to rebalance growth away from resource investment….”

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The Aussie Finds Weakness Again

Australia’s dollar dropped versus the yen, set for its worst weekly rout since 2011, before Chinese data tomorrow forecast to show growth in imports slowed, dimming the demand outlook for commodities.

Implied volatility of the Aussie against the U.S. currency was set for a sixth weekly advance, the longest in two years, before a U.S. jobs report today that may help investors estimate when the Federal Reserve will start reducing monetary stimulus. Australia’s government bonds extended their gains to a third day amid increasing bets the Reserve Bank will cut borrowing costs to shore up economic growth.

“We’re bearish on the currency,” said Andrew Salter, a currency strategist at Australia & New Zealand Banking Group Ltd. (ANZ) in Sydney, referring to the Aussie. It’s a little bit of a surprise that “Chinese growth is so sluggish,” he said.

The Australian currency dropped 1 percent to 92.13 yen as of 5:10 p.m. in Sydney after touching 90.84, the least since Jan. 2. It’s slumped 4.2 percent in the five days through today, poised for the biggest plunge since September 2011. New Zealand’s kiwi dollar declined 0.6 percent to 77.31 yen, having fallen 3.2 percent this week.

Australia’s dollar slid 0.8 percent to 95.17 U.S. cents, extending its fifth weekly drop to 0.6 percent. New Zealand’s dollar lost 0.5 percent to 79.86 U.S. cents, trimming its weekly advance to 0.5 percent.

Australian Yields

The yield on Australia’s benchmark 10-year government note dropped 9 basis points to 3.26 percent, extending its weekly decline to 10 basis points. Similar-maturity note yields in New Zealand fell 5 basis points to 3.55 percent…”

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Japan’s Finance Minister Says They Will Not Intervene in the Currency Market Just Yet

“Japanese Finance Minister Taro Aso said that the government won’t intervene in the currency market for now after the yen strengthened by the most in three years against the dollar.

“We are carefully watching, but we don’t have any immediate intention of taking any action, such as intervention,” the finance minister told reporters in Tokyo today. The yen jumped 0.7 percent to 96.28 per dollar as of 1:47 p.m. local time.

Japan’s currency surged 2.2 percent yesterday, adding to the headwinds of a slide in stocks and volatility in bonds as Prime Minister Shinzo Abe campaigns to revive the world’s third-biggest economy. As attention turns to a Bank of Japan meeting on June 10-11, Governor Haruhiko Kuroda’s actions may be limited by his pledge to avoid “incremental” steps after announcing a plan to double the monetary base over two years.

“Stocks rose and the yen weakened between November and May at a very rapid pace, driven by expectations for Abenomics and Kuroda-nomics, exceeding the pace of the economy’s fundamental improvement,” said Hiroaki Muto, a senior economist in Tokyo at Sumitomo Mitsui Asset Management. “The markets are now going through an adjustment phase from the too-rapid moves.”

Muto said that the “adjustment” is probably temporary because the Japanese economy is making gains. At the same time, he said the government may consider another jolt of fiscal stimulus.

Market Outlook…”

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The Yen Melts Up

“There are rip-your-face-off rallies and then there are the rip-your-face-off retreats—the kind Wall Street experienced Thursday during a brief but vicious yen surge.

At one point, the U.S. dollar lost about 4 percent to the Japanese currency as the pair trade tumbled through its 50-day moving average.

The move sent the Dow industrials plunging 115 points after flirting with positive territory through most of the early session, and delivered a quick but palpable shock through all levels of financial markets.

“Right now this just looks like a bunch of nervous hands,” said Christopher Vecchio, currency analyst at DailyFX. “The dollar was a very extended trade. This is the unwinding of that very crowded trade.” …”

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