July 5, 2017 / 12:25 AM / 16 days ago

FOREX-Yen gains on tensions in Korean peninsula, C$ near 10-month high

3 Min Read

* Dollar/yen slips 0.3 pct on North Korea

* Canadian dollar firm on rising expectations of BoC rate hike

By Hideyuki Sano

TOKYO, July 5 (Reuters) - The dollar slipped against the yen on Wednesday on concerns about rising tensions between the United States and North Korea while the Canadian dollar held firm after the nation's central bank chief backed an interest rate increase.

The dollar shed 0.3 percent in early trade to fetch 112.95 yen, slipping further from Monday's 1-1/2-month high of 113.48.

The yen tends to be bought back at times of heightened global uncertainty because of expectations Japanese investors may repatriate their foreign investment, despite the country's proximity to North Korea.

Pyongyang said on Wednesday it had conducted a test of a newly developed intercontinental ballistic missile that can carry a large and heavy nuclear warhead, triggering a call by Washington for global action to hold the isolated nation accountable for its pursuit of nuclear weapons.

The Pentagon condemned the missile test and said it was prepared to defend the United States and its allies against the growing threat from North Korea.

The Canadian dollar also held firm, trading at C$1.2934 per dollar after having hit a 10-month high of C$1.2912 to the dollar on Tuesday.

Bank of Canada Governor Stephen Poloz told a German newspaper that Canada's inflation should be well into an uptrend by the first half of 2018, adding that policy normalization must begin before price growth hits its target.

His comments prompted markets to price in a more than 50 percent chance of a rate hike at the central bank's next meeting on July 12, a dramatic turn from less than two weeks ago when barely anyone had bet on a tightening.

The euro was also supported by expectations the European Central Bank is edging towards winding back its stimulus following hawkish comments from its President Mario Draghi last week.

Although the common currency slipped early this week after rallying 2.1 percent last week, it has stabilised around $1.1359 .

"If we have more comments from ECB officials clearly implying tapering of its stimulus, we could see further upside in the euro," said Bart Wakabayashi, Tokyo Branch Manager of State Street.

Last week's top of $1.1445, its highest level in over a year, is seen as its immediate target. A clear break of the $1.15-16 area would signal a major departure from its trading range since early 2015.

The Australian dollar licked wounds at $0.7612 after the nation's central bank stuck to a neutral stance on the economy and interest rates on Tuesday, disappointing many traders who had expected a more hawkish tone. (Editing by Shri Navaratnam)

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