U.S. Dollar and Japan Yen notes are seen in this June 22, 2017 illustration photo. REUTERS/Thomas White/Illustration
February 28, 2020
By Tom Westbrook
SINGAPORE (Reuters) – The Japanese yen returned as a beacon of safety on Friday, hitting a one-month high against the dollar, as mounting fears the world was on the cusp of a pandemic sent global financial markets into a tailspin.
Currency trading has been less panicky than the week’s share market plunge, but the mood is much the same and a jump in U.S. rate cut expectations has only added to the yen’s allure.
The yen <JPY=> rose 0.7% to a month-high of 108.85 per dollar on Friday, leaving the greenback down 2.4% for the week, its biggest loss on the Japanese currency in more than three years.
Asia’s export currencies were crunched. The Australian dollar tanked 0.7% to a fresh 11-year low on the dollar and it lost twice as much against the yen <AUDJPY=R>.
The New Zealand dollar fell 1% on the greenback and 1.7% against the yen.
“We haven’t found any reason to stabilise,” said Westpac FX analyst Sean Callow.
“Every half hour or so we get a new headline about a factory closure, or a case in a country that hasn’t had one before…this sort of move, it feeds on itself.”
Hopes the coronavirus outbreak could be contained in China have vanished this week as infections spread around the globe.
The Aussie <AUD=D3> last bought $0.6519 and the kiwi <NZD=D3> sat at a four-month low of $0.6233.
ANZ analysts said, if the outbreak worsened, the Aussie could go as low as $0.58 and the kiwi to $0.55.
“The current degree of uncertainty makes it prudent to think about where the AUD and NZD may fall,” said ANZ FX head Daniel Been.
SEISMIC SHIFT
While much is still unknown about the virus, measures to contain it have wreaked havoc on supply chains, the world’s economy and financial markets. [MKTS./GLOB]
In currencies, the most marked shift this week has been the pause in the dollar’s advance as markets dramatically re-price the chance of the U.S. Federal Reserve lowering interest rates.
Investors are now expecting three Fed cuts by mid-year <0#FF:>, beginning with one in March which had been rated just a 9% chance a week ago. <FEDWATCH>
That sent the euro sharply higher overnight, as investors unwind carry trades, and has offered a slight brake on the massive flight from Asian currencies. But there are few other places for money storming out of Asia to go.
“Until the virus data says otherwise, the trading strategies should probably still err (towards safety),” Deutsche Bank strategist Alan Ruskin said in a note. “Buy gold, short oil,” he said.
“Initially, the dollar weakness is expected to be only modest versus alternatives like the yen, franc and euro; and, the dollar should strengthen versus commodity FX and emerging markets’ currencies.”
(Editing by Sam Holmes and Jacqueline Wong)
