The Yen fell broadly on Monday as euphoria over the US bond insurance sector boosted the appeal of stocks and other risky assets, helping to underpin high-yielding currencies like the New Zealand dollar.
Standard & Poor's said it had removed MBIA Corp's top AAA rating from credit watch negative, but added the outlook was negative, suggesting that a rating downgrade remained likely over the next two years. That announcement came on the heels of news of a possible rescue plan for troubled Ambac Financial Group, the second-largest US bond insurer. Such a step would help limit the damage from the ongoing credit crisis that has fractured investor confidence. Dresdner Bank, part of insurer Alliance, on Monday said it intends to support a rescue package for Ambac.
UsdJpy raced to a session high of 108.22 before retreating in late trade to around 108.09, still up 0.87%. EurJpy jumped to a five-week high of 160.41 and last traded up 0.86% at 160.30. EurUsd was little changed at 1.4832, taking a breather after hitting a three-week peak 1.4863 on Friday.
Global stocks have gained on hopes of the Ambac bailout. Ambac, which insures municipal bonds as well as other forms of debt, is facing Billions of Dollars of expected losses from guaranteeing repackaged risky sub-rime mortgages. A bailout could see Ambac avoiding a ratings downgrade that would force investors to sell Billions of Dollars' worth of securities, which would lift borrowing costs for consumers and US city governments and further strain an already slowing economy.
The New Zealand dollar, which has the highest interest rates among industrialized countries at 8.25%, rose to levels not seen since it was floated 23 years ago. NzdUsd hit a 0.8152 today from yesterday close 0.8138 (+0.62%). NzdJpy advanced 1.44% to 87.95. UsdCad fell 1.74% to 0.9954. The Australian dollar and sterling also posted gains against the Japanese currency. AudJpy rose 1.29% to 100.30, while GbpJpy climbed 0.84% to 212.54. The Yen often suffers in times of rising risk appetite because investors borrow it at low Japanese interest rates to fund carry trades that invest in higher-yielding currencies.