LONDON: The yen hit a one-month high against the dollar and the euro on Tuesday as investors bought safe-haven currencies amid a slide in oil prices that has triggered a bout of volatility across asset classes.
The rouble - a major victim of plunging oil prices - came under renewed pressure, despite the Russian central bank hiking interest rates 650 basis points overnight to halt its collapse.
The oil price fall would keep currencies like the Norwegian crown and the Canadian dollar, which are exposed to oil prices, under pressure.
Analysts say a deeper economic contraction in Russia will have a negative impact on global growth, especially in Europe. Adding to the anxiety is the U.S. Federal Reserve's two-day policy meeting starting later in the day, which could open the door for rate hikes in mid-2015.
The yen rose more than one percent to 116.22 to the dollar , its highest level in a month. The yen tends to strengthen at times of economic stress as it is often used as a funding currency for investments in higher yielding assets.
Similarly, the Swiss franc strengthened, trading at 1.2009 , near its highest since September 2013.
Capital flight out of energy-related and higher yielding assets showed little sign of abating, with U.S. crude futures hitting fresh 5 1/2-year low.
"Clearly the Russian situation is having an impact. The emergency rate hike shows that the benign impact from the drop in oil prices is perhaps running out. Investments could be hurt and all those currencies which are exposed to oil and funded in the dollar are being unwound," said Jeremy Stretch, head of currency strategy at CIBC World Markets.
The Russian central bank hiked its key interest rate to 17 percent, from 10.5 percent, in an emergency meeting.. The rouble initially strengthened after the surprise move late on Monday, but came under fresh pressure as plunging oil prices and the West's sanctions linked to the Ukraine crisis continued to cloud the currency's outlook.
Traders say the fate of the rouble - and of many other commodity currencies - rests on oil. Plunging oil prices are hurting the Canadian dollar which slid to five-year lows of C$1.1674 to the U.S. dollar.
Most investors were also cautious as the Fed looked set to debate whether to change its policy statement to indicate it's moving a step closer to rate hikes next year.
The euro rose to a two-week high of $1.2500 as euro zone businesses were in slightly better shape in December than expected.
The single currency also hit a four-year high against the Swedish crown after the Riksbank said monetary policy needed to become even more expansionary than it had been.
"Initial weakness in the Swedish crown reflected indications Riksbank was preparing unconventional tools should policy need to be eased further and that if necessary they could be used in February," said Josh O' Byrne, currency analyst at Citi.
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