Trump's Covid-19 infection may provide opportunity for hedge funds in yen

US President Donald Trump’s coronavirus infection may provide the catalyst for hedge funds to catch up with asset managers’ bullish bets on the yen.

Leveraged funds are likely to buy the Japanese currency as the diagnosis triggers a surge in haven bids, reversing the small bearish position they held last week. This would bring them in line with portfolio managers who held a record amount of bullish bets. The yen rallied against all its major peers on Trump’s announcement Friday as investors sought refuge in the safest of assets.

The infection is rattling markets as traders seek to assess the possibilities, ranging from who else may have been infected to the impact on the US presidential election. Nordea Investment Funds SA says it may cause the Trump administration to further harden its stance toward China. All the noise is likely to boost demand for the haven yen.

“A step up in yen buying along with equity markets potentially lining up with betting odds or polling that have Joe Biden in the lead suggest further yen strength is on the cards,” said Prashant Newnaha, a strategist at TD Securities in Singapore. “Although President Trump has indicated he will continue to fulfill his duties, many questions remain.”

The yen gained as much as 0.6 per cent to 104.94 per dollar in afternoon trading in Asia on Friday.

The currency has broken major resistance levels in the past five months — first 106 in May followed by 105 in July, before testing 104.00 on September 21. Options pricing indicates there’s an almost 80 per cent chance that the Japanese currency will drop below 104 before the year-end.

“Technicals signal a rising likelihood of dollar-yen retrying 104 again in the coming days,” said Kengo Suzuki, chief foreign-exchange strategist at Mizuho Securities in Tokyo.