SINGAPORE, Jan 11 — The safe haven yen surged in early Asian trade today as the South African slid, underscoring the risk-averse mood that has prevailed in markets since the start of the year as China has allowed the yuan to sharply weaken.
All eyes were on China’s mid-point fixing for the yuan at 01.15am, after the central bank strengthened the official rate for the first tine in nine trading days on Friday.
“The RMB’s behaviour over the past week has been difficult to predict. Different signals about FX policy have wrong footed market participants and we are wary in believing that an immediate calmness will soon emerge,” HSBC said in a weekend note.
“In this context, we expect RMB volatility to remain high while depreciation pressures are likely to remain strong.”
The rand fell as much as 10.3 per cent against the US dollar to a fresh record low of 17.9950 rand and was last trading at 16.8500.
The rand had already been under pressure against the dollar after surprisingly strong US jobs data on Friday was seen as supporting the case for the Federal Reserve to raise interest rates again in March.
Against the yen, the rand slid to as low as ¥6.7147, and was last down 4.3 per cent from late US trade on Friday at ¥6.8807.
The fall was caused by “massive liquidation” of global carry trades in the rand, said Jeffrey Halley, FX trader for Saxo Capital Markets in Singapore.
The slide seemed to be partly caused by stop-loss selling by Japanese retail margin traders, Halley said.
Japan’s markets were closed for a public holiday.
“Emerging markets (currencies) sold aggressively after Tokyo margin servers turned on at 7am Tokyo,” he said, adding that other emerging currencies such as the Mexican peso were also coming under pressure.
The Mexican peso weakened to a historic low of 18.01 pesos per dollar amid concerns over China’s slowing economy and persistent declines in oil prices.
The yen gained a lift as emerging market currencies came under renewed pressure, and rose to its highest level since late August against the dollar.
The dollar was last down 0.4 per cent against the yen at ¥116.99, having fallen to as low as ¥116.71 earlier today.
Risk appetite had been battered globally last week, benefitting the yen, after China guided the yuan sharply lower, stoking worries about the health of the world’s second-largest economy and the outlook for global growth.
Surprisingly strong US jobs data on Friday has done little to cheer the mood. Falls in oil prices helped weigh on US equities, which recorded their worst five-day start to a year on record. — Reuters
