Yen on the up as data lowers risk appetite

The yen held tight at two-month highs versus the dollar today, having rallied overnight as investors purchased the safe-haven currency on the back of disappointing economic data from Canada and Spain, reports Reuters.

Data revealing that Spain had fallen back into recession, the unexpected contraction of Canada’s economy in February and US Midwest business activity dropping dramatically gave markets the go-ahead to cash in on gains in risk assets seen recently.

The dollar dropped to as low as 79.73 yen. Meanwhile, the euro hit a two-week low of 105.47 yen, before it steadied at 105.74. Traders pointed out that the final month-end positioning yesterday also contributed towards the fluctuating price action.

The market currently is preparing for the official Chinese manufacturing activity data. Forecasts are that the PMI will come in at 53.6, against 53.1 in March. It is thought that a weaker reading may trigger further risk aversion. However, trading is expected to be subdued as much of Europe and Asia is closed today for May Day.

The Canadian dollar was one of the biggest losers as the economy contracted by 0.2 per cent during February, cooling speculation that the Bank of Canada may start increasing interest rates in the coming weeks. It fell below 81.00 yen, while the US dollar went up to C$0.9874, climbing from a seven-and-a-half month low of roughly C$0.9800 on Friday.