Safe-haven currencies gain on oil weakness, China fears
TOKYO: The yen and euro got a boost Wednesday as traders bought safe-haven currencies while commodity-linked units took a beating on the back of weak oil prices and worries about the global economy.
The price of oil has plunged by almost a tenth since Friday’s refusal by the Organization of the Petroleum Exporting Countries cartel to agree a ceiling on output despite oversupply and anemic demand.
The global supply glut, weak demand and a growth slowdown in China have combined with soaring production to send crude prices slumping over to seven-year lows.
Equity markets have plunged in response. Investors’ flight to safety helped the Japanese currency — typically seen as a less risky asset in times of uncertainty and turmoil.
The yen also got support after better-than-expected revised Japanese GDP data Tuesday tempered expectations for more stimulus by the Bank of Japan, a move that would tend to weaken the yen. In Tokyo, the dollar slipped to 122.78 yen from 122.97 yen in US trade and is well down from levels above 123 yen earlier this week.
The euro, meanwhile, was flat at 133.94 yen while it rose to $1.0906 from $1.0892 in US trading. Also supporting the common currency was the European Central Bank’s decision last week not to increase the size of its stimulus plan while a rate cut came in well below market expectations.
“There is no incentive to sell the euro now, with the ECB having taken action and no follow through seen for some time,” Kenji Yoshii, a currency strategist at Mizuho Securities, told Bloomberg News.
“It may rise if commodities prices slide further to spur risk aversion, which will favour developed nation currencies over emerging and commodities currencies.” Trade data on Tuesday showed China’s economy is still in the grip of a growth slowdown, denting demand for commodity linked and higher-yielding, riskier currencies.
The Malaysian ringgit slipped 0.08 percent against the dollar Wednesday, while Indonesia’s rupiah fell 0.74 percent.