Currency Volatility Jumps to 3-Month High as Turmoil Persists

  • Decline in crude-oil price spurs losses for rand and real
  • China turmoil has investors assessing risk-on, risk-off

Currency volatility rose to a three-month high as China’s market meltdown continued to ripple across the globe, hurting currencies of nations that rely heavily on demand from the world’s second-biggest economy.

Natural-resource-linked currencies, such as South Africa’s rand and Brazil’s real, were among the biggest losers after oil fell while equities in Europe and the U.S. resumed their slumps that began on the first trading day of the year. The yen, a traditional haven currency, pared losses.

"The market is really in flux," said Fabian Eliasson, head of U.S. corporate foreign-exchange sales in New York at Mizuho Financial Group Inc. "The stock market can’t really decide for a direction and oil keeps slipping."

The JPMorgan Global FX Volatility Index was unchanged at 10.43 percent at 5 p.m. New York time, the highest since Sept. 30 on a closing basis. The rand tumbled 2.9 percent, while the real sank 0.7 percent. 

Yen Swings

The yen weakened 0.4 percent to 117.76 per dollar after dropping as much as 0.7 percent. Japan’s currency rallied every day last week as turbulence in China’s financial markets rippled across stocks and commodities around the world.

"Dollar-yen is mirroring what we’re seeing in the equity markets," said Daragh Maher, head of currency strategy for HSBC in New York. "To that extent, it’s just become the classic safe haven play."

The weaker oil price drove the U.S. dollar higher against the Canadian dollar and Norwegian krone, two nations that export crude. Modest U.S. dollar strength may also be a legacy of Friday’s stronger-than-forecast employment gains, Maher said.

"What people will be curious about is the risk-on, risk-off spectrum," he said. "There will be greater interest in the likes of yen, Aussie and Canadian dollar than there will be necessarily in the dollar."

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