Failure of U.S. bailout package pushes Dollar to a 13 year low versus Yen

The U.S. Dollar bottomed out to a new 13 year low versus the Japanese Yen in London trading today, following the overnight failure of the U.S. Senate to ratify a bailout agreement for the major U.S. auto makers, which triggered risk aversion and a strong demand for the lower yielding Japanese Yen.

The $14 billion U.S. auto maker bailout package was presented before the U.S. Senate earlier this week, but the plan collapsed late on Thursday when Republican lawmakers voted against it in its present form.  As a result, fears of a global recession were renewed, and investors in markets worldwide fled from riskier assets including emerging markets and equities.

According to analysts, The Japanese Yen would benefit from the risk aversion tendencies, and that high yielding currencies, including the New Zealand and Australian dollars would be battered when pitted against the Yen.  Marco Annunziaita, an economist in London’s Unicredit, believes that, at least for the short term, the risk aversion tendencies would lead to an unwinding in the carry trade, and as a result, there would be strong repatriation back into the Yen.

In London trading at 11:48 (GMT), the U.S. Dollar traded at 90.33 Yen, 1.5% lower on the day.  Meanwhile, the Euro lost 1.7% versus the Japanese Yen trading at 119.95; the Australian and New Zealand Dollars fell to 59.08 and 48.15 versus the Japanese Yen, respectively.