Extended falls in stock markets spur investors to flock to safe haven currencies
The Swiss franc surged to an all-time high against the euro on Tuesday as investors' confidence was shattered by extended falls in share prices, prompting them to flock to safe haven currencies.
The yen advanced while the dollar strengthened versus commodity currencies as Wall Street's biggest sell-off since December 2008 prompted a massive flight to safety, but wariness over possible intervention made investors cautious about testing the yen to record high levels.
Risk-related currencies found some respite after Asian bourses bounced off intraday lows with Tokyo's stock market trimming losses to 1.7 percent from more than 4 percent and Seoul shares recouping more than a half of more than 8 percent intraday falls.
"The yen and the Swiss franc are drawing extremely strong demand as plunges in global shares are having a major psychological impact, forcing investors to refrain from holding risk assets," said Teppei Ino, a currency analyst at Bank of Tokyo-Mitsubishi UFJ.
The dollar was down 0.4 percent at 0.7514 Swiss franc, edging higher after coming close to an all-time low around 0.7483 reached the previous day.
The euro plunged to a record low on trading platform EBS of 1.0605 francs, then traded flat at 1.0700.
"The dollar, the Swissy and the yen are being bought today and that's why we're seeing relatively less volatility in those crosses," said Koji Fukaya, director of global foreign exchange research at Credit Suisse Securities in Tokyo.
"Dollar/yen isn't being sold most aggressively because the dollar is also supported by safe-haven demand, thus both the yen and the dollar are in the same basket, limiting the volatility between them."
Still, at one point the dollar drifted to 77.051, below levels where Japanese authorities intervened heavily on August 4. and not far off the record low of 76.25 yen reached in mid-March. It was down 0.6 percent at 77.25 yen.
The dollar briefly spiked against the yen as large stop loss orders were triggered in the South African rand, prompting the dollar toward an intraday high of 77.86 yen and fuelling speculation that Tokyo authorities had stepped into the market, but the dollar's subsequent decline eased market jitters.
"The market is wary of buying the yen too aggressively, particularly after intervention last week. It will be a bit difficult to sell dollar/yen from current levels," Bank of Tokyo-Mitsubishi's Ino said.
Japanese Finance Minister Yoshihiko Noda said on Tuesday he is closely watching markets with a sense of urgency after share prices tumbled due to uncertainty over the global economic outlook.
Despite trading up 0.3 percent at $1.4226 the euro stayed below its recent highs on the dollar, having touched around $1.4400 on Monday.
The euro's softness came even as traders said the European Central Bank bought Spanish and Italian debt early in the European session, putting into action its vow to "actively implement" its bond-buying programme.
The euro was at $1.4224, up 0.3 percent from late US levels the previous day.
Commodities currencies were hit as oil, grains and metal prices extended their losses in Asia.
"We are seeing strong net selling of especially the Australian and Canadian dollars as commodity-linked currencies lose ground amid renewed concerns about global growth stalling," said Samarjit Shankar, managing director of global FX strategy at BNY Mellon in Boston.
At one point the Australian dollar fell below parity against the US dollar, sliding to $0.9927, its lowest in about five months, but later recovered to $1.0139.
The Aussie has lost about 10 cents from a 29-year peak of $1.1081 set just two weeks ago.
The market's next focus is squarely on Federal Reserve policymakers, who are due to meet on Tuesday.
There has been talk that the Fed will discuss options for more measures to help the economy, but the common view on Wall Street is that it will refrain from any fresh moves after having completed a $600bn bond programme known as QE2 in June.
Still, given the magnitude of the recent declines on Wall Street, the Fed will be under intense pressure to offer some sort of assistance, if only verbal.