Dollar at 11-month high against yen as oil soars

The dollar struck an 11-month high against the yen on Wednesday as oil prices climbed to a record, weighing on the outlook for Japan's fragile economic recovery. Traders sold yen as the price of oil peaked above $60 per barrel, on the view that Japan's heavy reliance on imported crude could snuff out recent signs that the world's second largest economy was gaining steam.
The euro "bullied its way up through 133.50 yen," in turn weighing on the yen against the dollar, said Grant Wilson, senior foreign exchange trader with Mellon Financial in Pittsburgh.
The catalyst for the Japanese currency's weakness "might be high oil prices, which are thought to be more of a negative for the yen than for some other currencies," Wilson said.
By late afternoon, the dollar hit 11-month highs around 112.29 yen, according to Reuters data, up over 0.4 percent from late Tuesday. Traders said a barrier option was at 112.50 yen and another was at 113.00 yen, and that might be containing a further rally.
They noted demand for long-dated dollar/yen options, including a 2-year $500 million contract to buy dollars for yen at 112 yen with a knockout feature at 120 yen.
In barrier options, if the knockout level is reached before the contract expires, the option becomes worthless.
The euro rose to 133.82 yen, up nearly 0.6 percent.
Against the dollar, the euro was trading at $1.1930, up 0.1 percent.
The Canadian dollar rose broadly ahead of a meeting of the Bank of Canada next week in which some market participants are betting on the first interest rate hike since last fall.
The US dollar slipped due to technical reasons to C$1.2350, down a half percent on the day.
The euro sank to a new 3-year low of C$1.4713 before retracing up to C$1.4748. Earlier, the US dollar climbed slightly after the Institute for Supply Management's non-manufacturing index for June was 62.2, above economists' forecasts of 58.0.
"The service sector accounts for two-thirds of the economy and a number as strong as this is definitely dollar positive," said Brian Taylor, chief dealer of foreign exchange trading with Manufacturers and Traders Bank in Buffalo, New York.
Friday's US payrolls report is expected to show 188,500 new jobs in June, according to the median forecast of a Reuters poll. That would be a big improvement on 78,000 in May.