Yen Proves Top Haven Role as Aussie Suffers Worst Start to Year

  • Chinese yuan fluctuations send yen to strongest since August
  • Australian dollar at 3-month low as commodity currencies hit

If the first week of 2016 has shown one thing, it’s that when it comes to safe havens the yen is still No. 1.

Investor confusion over China’s monetary and stock-market policies have sent Japan’s currency surging to its strongest level since August versus the dollar. The central bank of the world’s second-largest economy cut its yuan reference rate by the most since August, before speculation it had intervened to prop up the exchange rate prompted a rally.

Australia, New Zealand and Canada’s currencies are among those bearing the brunt of the disruptions in China, a key buyer of those nations’ commodity exports, with the Aussie suffering the worst start to a year since it began trading freely three decades ago.

“The yen is the pre-eminent risk-adverse currency, and the euro is not far behind,” Kit Juckes, global strategist at Societe Generale SA said in an interview on Bloomberg Television’s “Surveillance” with Francine Lacqua and Tom Keene. “Both are places where capital is exported to invest in attractive opportunities around the world. When things go badly wrong, that’s when it comes back.”

Japan’s currency advanced 0.7 percent to 117.60 to the dollar at 8:01 a.m. New York time, after touching 117.33, the strongest level since August. It was little changed at 127.73 per euro, while Europe’s shared currency jumped 0.8 percent to $1.0864.

Yuan Fluctuations

The offshore yuan traded in Hong Kong swung between gains and losses and touched its weakest level since 2010.

“By cutting the yuan fixing, it signals they might be doing more devaluation,” said Bernard Aw, a strategist at IG Asia Pte in Singapore. “This will have a crimping effect on Chinese demand for commodities and affect the economies of its trading partners, which is why we’re seeing a weakening of the Australian and New Zealand dollars.”

The Aussie tumbled 1.2 percent to 69.89 U.S. cents, after falling to 69.81, its lowest level since September. It has fallen more than 4 percent since Dec. 31 in the worst start to a year since currency controls were scrapped in December 1983, according to data compiled by Bloomberg.

The New Zealand dollar dropped 0.5 percent to 66.06 U.S. cents, leaving it about 3.3 percent weaker in 2016. The Canadian dollar slipped 0.5 percent to C$1.4151 per greenback, having depreciated to a 12-year low of C$1.4170.

“There’s an increasing risk aversion partly due to what China’s doing,” said Mitul Kotecha, Barclays Plc’s Singapore-based head of Asia currency and rates strategy. “The yen remains a safe-haven beneficiary and the moves in China’s market will continue to give it some near-term support.”

Before it's here, it's on the Bloomberg Terminal. LEARN MORE