Swiss franc near peak, Aussie down as markets dump risk

SINGAPORE: The Swiss franc hit record highs and the Australian dollar fell on Wednesday as investors scrambled for a safe haven on renewed tensions in the euro zone debt market and worries about a global slowdown.

Commodity currencies like the Australian dollar were among the hardest hit, while the yen was relatively steady against the US dollar as markets were wary of intervention to weaken the currency after recent jawboning from Japanese authorities.

Even Moody's affirmation of the United States' prized triple-A credit rating failed to calm jittery markets. Moody's announcement followed congressional approval of a deficit-cutting plan that paves the way for the US to lift its debt ceiling.

Instead, markets focused on more weak US data on Tuesday, following a batch of dour manufacturing surveys on Monday. Latest figures showed US consumer spending dropped in June for the first time in nearly two years and incomes barely rose.

Adding to market jitters was the a sell-off in peripheral euro zone bonds, which drove Italian bond yields to a 14-year high on Tuesday.

The souring mood saw investors make a beeline for safe-haven assets including the Swiss franc and gold, which also hit a record high .

"Given what we're seeing at the moment is safe haven demand, further Swiss franc strength is conceivable," said Gareth Berry, associate director of G10 FX strategy for UBS in Singapore.

"When it's all about capital preservation rather than yields, strange things can happen in the currency space and currencies like the Swiss franc can be pushed well beyond levels that are compatible with what economic fundamentals suggest," Berry added.

Earlier on Wednesday, the euro hit a record low of 1.0797 versus the Swiss franc on trading platform EBS. The euro later trimmed its losses and was last up 0.6 percent from late US trading on Tuesday at 1.0896 francs .

The dollar also trimmed losses against the Swiss franc after hitting a record low of 0.7610 francs earlier on Wednesday. The dollar last stood at 0.7669 versus the Swiss franc, up 0.6 percent on the day.

The dollar got a bit of respite against the yen in the wake of its recent drop close to a record low.

"The market looks overly short in dollar/yen so it is difficult for the market to sell further. The market is particularly watching US jobs data on Friday to see whether to sell further," said Tsutomu Soma, senior manager for Okasan Securities in Tokyo.

The dollar edged up 0.2 percent against the yen to 77.28 yen . The dollar had hit a four-month low of 76.29 yen late last week, right near a record low of 76.25 yen in March, stirring jitters that Japanese authorities may intervene to curb the yen's rise.

Another focal point is whether the Bank of Japan will ease monetary policy at a policy meeting later this week to help curb the yen's rise. One possible step may be to expand the size of the BOJ's asset-buying scheme, which now stands at 10 trillion yen.

There is scepticism, however, about how effective Japanese solo intervention would be and also regarding the potential impact of any BOJ monetary easing.

"The market is turning suspicious about seeing an effective yen-selling intervention as the Bank of Japan may not be able to come up with strong monetary easing measures," said Soma at Okasan Securities.

Heightened risk aversion took a heavy toll on riskier assets, with stocks and commodity currencies bearing the brunt of the market's furor.

"There certainly has been weaker numbers globally, particularly out of the US There is already a high level of uncertainty in global markets and that's another layer which is impacting on sentiment," said Greg Gibbs, strategist at RBS in Sydney.

The Australian dollar fell 0.4 percent to $1.0742 , pulling away from a 29-year high of $1.1081 hit last week, with some investors wagering that interest rates would have to be cut in Australia to avoid recession.

Traders said a daily close below the $1.0775 area will signal yet another failure at $1.1032-1.1083 major long-term resistance, a negative signal for the currency.

Copyright Reuters, 2011