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Markets

Yen, Swiss franc stand tall as risk aversion pummels Aussie, kiwi

  • The benchmark US Treasury yield dipped to a nearly five-month low of 1.25% overnight
09 Jul 2021

TOKYO: The safe-haven yen and Swiss franc stood tall on Friday, while risk-sensitive currencies including the Australian and New Zealand dollars dipped to fresh multi-month lows as investors turned cautious about the global economic recovery.

Bonds have rallied while stocks took a hammering worldwide amid growing concerns the fast-spreading Delta variant of COVID-19 could derail a revival that is already showing pockets of weakness.

The benchmark US Treasury yield dipped to a nearly five-month low of 1.25% overnight, before rebounding to 1.3433% in Asia. It was as high as 1.5440% just two weeks ago.

That decline in yields has pressured the US currency. The dollar index clawed back part of Thursday's 0.36% slide, rising less than 0.1% to 92.454. On Wednesday, it had pushed to a three-month high of 92.844.

The euro held on to most of a 0.45% jump from overnight, slipping less than 0.1% to $1.18355.

Euro stands tall in broad risky FX bets rout

The yen changed hands at 109.915 per dollar, weakening about 0.15% after the previous session's 0.8% rally.

"There is certainly a wind of change in markets," with concerns about inflation now shifting to concerns about growth, Rodrigo Catril, a strategist at National Australia Bank, wrote in a client note.

"There has not been a single catalyst triggering a turn in sentiment, instead it seems that an accumulation of events," including the rapid spread of the Delta variant and perceptions that central bank tightening could choke the recovery, he said.

Data on Thursday showed the number of Americans filing new claims for unemployment benefits rose unexpectedly last week, an indication that the labour market recovery from the COVID-19 pandemic continues to be choppy.

The Swiss franc held on to gains from Thursday, when it soared more than 1%, to trade at 0.91525 per dollar.

The Aussie slipped a further 0.2% to $0.74175 after earlier touching a fresh low for the year at $0.7410. On Thursday, it posted a 0.7% decline.

New Zealand's kiwi lost 0.1% to $0.69365, and dipped as low as $0.6923, matching the weakest level since November. It had plunged more than 1% in the previous session.

"The longer the reassessment of a global recovery continues, the more these currencies will weaken," Commonwealth Bank of Australia strategist Joseph Capurso wrote of the Antipodean currencies in a research note.

"Our new forecasts predict weakness in these currencies for the rest of the year," with Aussie falling to $0.72 and kiwi to $0.6650, "but the risk is both currencies dip modestly below our guidance," he said.

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