Dol­lar weak­ens, yen at Oc­to­ber highs af­ter US stocks slide

The Financial Daily - - NATIONAL -

SIN­GA­PORE: The US dol­lar, usu­ally seen as a safe haven in tur­bu­lent times, sur­prised some cur­rency strate­gists on Thurs­day by los­ing ground af­ter spooked in­vestors drove US stocks to their worst fall in nearly eight months.

The VIX, Wall Street's "fear in­dex" mea­sur­ing the stock mar­ket's ex­pec­ta­tion of vo­latil­ity, rose by 44 per­cent to 22.96 on Thurs­day, its high­est level since April.

The dol­lar in­dex, a gauge of its value against six ma­jor cur­ren­cies, fell 0.25 per­cent to 95.27 on Thurs­day, af­ter hit­ting a high of 95.79 in the pre­vi­ous ses­sion.

"In an en­vi­ron­ment where peo­ple are con­cerned about ris­ing vo­latil­ity, the dol­lar tends to do well - es­pe­cially ver­sus higher-risk cur­ren­cies such as the Aussie and Cana­dian dol­lar," said Stu­art Ritson, Sin­ga­pore­based head of Asian rates & for­eign ex­change at Aviva In­vestors.

"There seems to be a dis­con­nect and there is no ob­vi­ous ex­pla­na­tion for why the dol­lar did not fare bet­ter on a risk-off day," said Ray At­trill, head of for­eign ex­change strat­egy at NAB in Syd­ney.

"The yen con­tin­ues to show its colours as the mar­kets favourite risk haven proxy," added At­trill.

The safe-haven yen strength­ened to 112.19 against the dol­lar, its high­est level this month, tak­ing heart from risk aver­sion in the wake of warn­ings from the In­ter­na­tional Mone­tary Fund over global growth and fi­nan­cial sta­bil­ity.

"There was a clear bid for cur­rent-ac­count sur­plus coun­tries with both the JPY and EUR find­ing sup­port," ANZ said in a note.

The Fed­eral Re­serve's ap­par­ent de­ter­mi­na­tion to raise US in­ter­est rates over the next 12 months has driven up US Trea­sury yields, which have been fur­ther bol­stered by strong eco­nomic data.

"We ex­pect ris­ing in­fla­tion to keep the Fed hik­ing in­ter­est rates at its cur­rent once-a-quar­ter pace un­til the mid­dle of 2019," Cap­i­tal Eco­nom­ics said in a note.

Ex­pec­ta­tions of hawk­ish rate rises may have been at work on Wed­nes­day when sell­ers sent the Nas­daq to close at 7044.49, its low­est level since early July.

The S&P 500 and Dow Jones In­dus­trial Aver­age weren't too far be­hind, both fall­ing more than 3 per­cent.

Bench­mark 10-year yields cooled off from a seven-year high of 3.261 per­cent hit on Tues­day to 3.1611 per­cent

The euro rose 0.27 per­cent to 1.1550 on Thurs­day af­ter hit­ting a low of 1.1477 in the pre­vi­ous ses­sion. BREXIT AND ITALY EU Brexit ne­go­tia­tor Michel Barnier said on Wed­nes­day the par­ties had agreed on much of the with­drawal agree­ment ahead of a sum­mit of the bloc's 28 na­tional lead­ers next week.

But the euro's gains are likely to be limited with mar­kets wor­ried about the sus­tain­abil­ity of Italy's pub­lic fi­nances, de­spite Ital­ian Econ­omy Min­is­ter Gio­vanni Tria stat­ing that the gov­ern­ment would do ev­ery­thing in its power to re­gain the con­fi­dence of fi­nan­cial mar­kets.

Ster­ling traded at $1.3213, just be­low its weekly high, as in­vestors bet on an or­derly Bri­tish de­par­ture from the EU in March.

The pound has gained more than 2 per­cent ver­sus the dol­lar over the last five trad­ing ses­sions.

The Cana­dian dol­lar was chang­ing hands at 1.3041, not far off its Oc­to­ber low of 1.3069 ver­sus the dol­lar hit on Wed­nes­day.

The Aus­tralian dol­lar, of­ten viewed as a gauge of global risk ap­petite, traded at 0.7072, up 0.25 per­cent on Thurs­day.

The New Zealand's dol­lar traded at 0.6472, above its mul­ti­year low of 0.6422 seen on Mon­day.

Gold traded rel­a­tively flat at $1,192 be­low the psy­cho­log­i­cal $1,200 level.

China is on US Trea­sury's mon­i­tor­ing list, which is pub­lished twice yearly as a part of a cur­rency re­port. But far, Bei­jing has not met all three of the three cri­te­ria set by Trea­sury for be­ing named as a cur­rency ma­nip­u­la­tor.

The lat­est re­port is due by Oct. 15.

"There are China con­cerns ahead of the re­lease of the US Trea­sury re­port on FX - a con­sen­sus is emerg­ing that there will be at least a changed lan­guage, al­though it's not clear that the con­sen­sus is firm on China ac­tu­ally be­ing named a ' cur­rency ma­nip­u­la­tor'," said J.P. Mor­gan As­set Man­age­ment global mar­ket strate­gist Mar­cella Chow.

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