Yen Rises as China Stock Slide Spurs Haven Demand; Aussie Falls

08/07/2015 10:49 AST

The yen strengthened against all its major counterparts as a stock rout in China and the risk of a Greek exit from the euro-area spurred demand for haven assets.

Japan’s currency advanced for a fifth day versus the dollar, the longest winning streak since April, amid concern the turmoil in China and Greece will spread and slow global economic growth. Australia’s dollar slumped to a six-year low following a nine-day selloff in iron ore. The euro erased earlier declines.

“It’s clearly been dominated by safe-haven flows into traditional currencies, the U.S. dollar and yen,” said Derek Mumford, director at Rochford Capital, a currency risk-management company in Sydney. “For the moment there’s a huge amount of uncertainty whether it’s China, Europe or even the U.S..”

The yen appreciated 0.5 percent to 121.95 per dollar at 6:45 a.m. in London, extending its five-day gain to 1 percent. Japan’s currency advanced 0.5 percent to 134.29 per euro. The euro was little changed at $1.1011 after dropping as much as 0.3 percent.

China’s Shanghai Composite Index tumbled as much as 8.2 percent, the most since 2007. A raft of measures by authorities to stabilize the market has so far failed to stop the rout as traders unwind margin bets at a record pace.



Traders ‘Nervous’

“Developments are still reasonably contained in China, but it won’t stop market participants reacting to it, and getting a bit nervous and selling,” said Richard Grace, chief currency and rates strategist and head of international economics at Commonwealth Bank of Australia in Sydney. “There’s a gravitation towards the U.S. dollar and the current-account surplus countries such as the yen and the Swiss franc.”

Australia’s dollar declined for a sixth day. Benchmark prices for iron ore, the nation’s biggest export earner, entered a bear market on Monday, having dropped more than 20 percent from a June high.

The Aussie slid 0.4 percent to 74.20 U.S. cents after declining to 73.91 cents, the weakest level since May 2009.

The euro fell in earlier trading as European leaders said Greece only had until Sunday to avoid an exit from the currency group.

German Chancellor Angela Merkel said Tuesday she is “not especially optimistic,” while European Commission President Jean-Claude Juncker said an exit scenario had been “prepared in detail.”

Three-month implied volatility, a measure of anticipated price swings in the euro-dollar exchange rate, rose for a fourth day. The gauge climbed to 12.31 percent, the highest on a closing basis in three years.

“I don’t think they’re going to get this out of the way very quickly,” said Roger Bridges, chief global strategist for interest rates and currencies at Nikko Asset Management Australia in Sydney. “Whatever happens, the euro will come off.”

Bloomberg