FOREX-Swiss franc hits record vs euro as market confidence dives

Dated Posted: 2011-08-09

TOKYO/SYDNEY, Aug 9  - The Swiss franc surged to a record high against the euro in Asia on Tuesday as investors' confidence was shattered by extended falls in regional share prices, prompting them to flock to safe haven currencies.

The yen advanced and the dollar jumped against the euro and commodity currencies as Wall Street's biggest selloff since December 2008 prompted a massive flight to safety, but wariness over possible yen-selling intervention made investors cautious about testing the yen to record high levels.

Investors turned increasingly cautious about holding onto risk assets as Asian shares suffered sharp losses.

The risk aversion intensified in the forex market as Tokyo's stock market fell more than 4 percent, Shanghai shares lost more than 1 percent and Seoul shares plunged more than 8 percent.

"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 0.7 percent at 0.7494 Swiss franc , near an all-time low around 0.7483 reached the previous day.

The euro plunged to a record low of 1.0605 francs , then traded down 0.5 percent at 1.0651.

"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, the dollar drifted to near levels where Japanese authorities intervened heavily on Aug. 4.

The dollar was down 0.8 percent at 77.15 after falling to an intraday low of 77.05, not far off the record low of 76.25 yen reached in mid-March.

The euro fell 0.7 percent to 109.55 yen from recent highs around 114.00.

"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.

EURO DRIFTS, AUSSIE BELOW PARITY

The euro came off its recent highs on the dollar, having touched around $1.4400 on Monday.

The euro's decline 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 program.

The euro also was weighed down on the dollar as U.S. Treasuries soared, despite Standard & Poor's downgrade of the United States' prized triple-A credit rating, a move that unsettled investors already worried about festering debt problems on both sides of the Atlantic.

The next downside target for euro/dollar is seen around Friday's low at $1.4055. Support lies around $1.4030, the pair's 200-week moving average, strategists said.

The euro was at $1.4216 , up 0.3 percent from late U.S. 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.

The Australian dollar fell below parity against the U.S. dollar, sliding to $0.9927 , its lowest in about five months.

The Aussie has lost about 10 full 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 chatter 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 $600 billion bond program 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.

 

Source:  Reuters