Tuesday, 2 December 2008
Risk Aversion Back, with Yuan Badly Hit
Fears of more weak US data and a whole series of interest-rate cuts combined to bring the US dollar and Japanese yen back to favour during Asian currency trading yesterday, while the Chinese yuan suffered one of the sharpest one-day relapses since it was de-pegged from the greenback in July 2005.
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Risk Aversion Back, with Yuan Badly Hit
By LARRY WEE
2 December 2008
Fears of more weak US data and a whole series of interest-rate cuts combined to bring the US dollar and Japanese yen back to favour during Asian currency trading yesterday, while the Chinese yuan suffered one of the sharpest one-day relapses since it was de-pegged from the greenback in July 2005.
Forward trading offshore via non-deliverable forwards or NDFs saw the yuan price paid for US dollar one-year forward lifted sharply from last Friday’s 7.0450 yuan close, to hit a high of 7.2050 yuan in Asia yesterday, according to Reuters data. This is on speculation that the next package of Chinese stimulus measures for its faltering economy may well involve some back-tracking for the yuan in some form or other.
At the centre of it all, traders noted, Chinese authorities fixed the mid-rate for the US dollar sharply higher yesterday morning, lifting it quite a bit from Friday’s 6.8349 yuan to 6.8505 yuan per US dollar yesterday. This, in turn, paved the way for the American currency to surge 0.7 per cent to a 6.8848 yuan close, its best level in more than five months.
Nor was it just the yuan that suffered yesterday. UK-based research firm Forecast reported a large month-end conversion of euros for US dollars last Friday evening, which left the European currency 1.7 per cent weaker at US$1.2645 by yesterday’s close.
But even as currencies tumbled across a broad front versus the US dollar, the latter in turn tumbled more than one yen from last Friday’s 95.73 yen high, ending the day 1.3 per cent worse off at 94.07 yen.
At home, the combination of euro and yuan weakness saw the greenback spike more than two Singapore cents higher from last Friday’s S$1.5040 low as well, to record an intra-day peak of S$1.5268 before closing 1.1 per cent stronger at S$1.5260. Further north, ongoing tensions in Bangkok also lifted the US unit to a fresh 2008 high of 35.78 baht.
Down Under, meanwhile, any nascent interest in either the Australian dollar or New Zealand dollar (the Aussie and Kiwi) might have been short-circuited yesterday by worries that both countries’ central banks could trim rates more than expected at their interest-rate meetings this week - which take place today and on Thursday respectively.
To make matters worse for the duo, traders cited added concerns that Wall Street may suffer a relapse on weaker US data over the course of this week. And, if that causes risk aversion trades to spike again, the pair from Down Under would be among the first to be sold off against the Japanese yen again.
Weaker US statistics expected out this week start with the overnight release of an important ISM index of US manufacturing sentiment for November, and end with what many fear will be another ugly big loss of US jobs for the same month by this Friday.
This unfortunate confluence of negatives saw the Kiwi and Aussie finish with the day’s worst losses of 3.2 and 2.5 per cent - at 53.55 and 64.16 US cents respectively.
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