Yen Rises as China Stock Slide Fuels Haven Demand; Euro Gains

July 7, 2015 Bloomberg

by Lananh Nguyen

The yen strengthened as a stock rout in China spurred demand for haven assets amid a slump in commodity currencies.

Japan’s currency gained versus all of its 16 major peers. It advanced for a fifth day against the U.S. dollar, the longest winning streak since April, amid concern the turmoil in China will spread and slow global economic growth. The euro climbed by the most in three weeks amid speculation that Greece will reach an agreement with creditors this weekend.

“Japan’s very much the rock in a sea of troubles,” Karl Schamotta, director of foreign-exchange research and strategy at Cambridge Global Payments in Toronto, said by phone. “You’re looking at a safe-haven play.”

The yen appreciated 1.5 percent to 120.71 per dollar at 5 p.m. New York time, extending its five-day gain to 1.9 percent. Japan’s currency strengthened 0.9 percent to 133.70 per euro. The euro rose 0.6 percent to $1.1077.

The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 of its major peers, remained lower after minutes from the Federal Reserve’s latest policy meeting showed officials in June expressed concern about weak consumer spending and risks from China and Greece. Officials also saw the U.S. economy moving toward conditions that would support an interest-rate increase.

‘Three Variables’

Investors are “looking away from the U.S. and to Greece, to China, to the price of oil; those are the three variables that seem to be even more in play than Fed minutes,” Greg Anderson, Bank of Montreal’s global head of foreign-exchange strategy, said by phone from New York.

China’s Shanghai Composite Index tumbled as much as 8.2 percent, the most since 2007. A raft of measures by authorities to stabilize the market has so far failed to stop the slide as traders unwind margin bets at a record pace.

“It’s a general loss of investor confidence in what’s going on in China — markets are a bit unnerved,” Joe Manimbo, an analyst at Western Union Business Solutions, a unit of Western Union Co. in Washington. “You’ve got potential knock-on effects if the stock crash in China should further slow the Chinese economy and what could it could mean for global growth.”

Commodities from metals to crude sank this week on concern consumption is waning in China. The Bloomberg Commodity Index of 22 raw materials has dropped about 4 percent this week, taking 2015’s decline to more than 6 percent.

‘Absolute Collapse’

“The safe-haven bid for yen is being driven by the absolute collapse in China’s equity markets,” Matt Weller, an analyst at Gain Capital Holdings Inc.’s unit in Grand Rapids, Michigan, said by phone. With regard to Greece, “traders still expect some sort of deal to be done,” he said.

The euro climbed as traders squared off bearish bets against the shared currency on optimism that a Greek deal will be forged, Matt Derr, a foreign-exchange strategist at Credit Suisse Group AG in New York, said by e-mail.

The European Central Bank maintained its emergency aid for Greek lenders, people familiar with the matter said. The European Union set a Sunday deadline to reach an agreement.

Australia’s dollar declined for a sixth day, falling to a six-year low. Benchmark prices for iron ore, the nation’s biggest export earner, entered a bear market on Monday, having dropped more than 20 percent from a June high.

The Aussie slid 0.3 percent to 74.29 U.S. cents and touched 73.72 cents, the weakest level since May 2009. The Canadian dollar fell 0.3 percent to C$1.2746 versus its U.S. counterpart. Norway’s krone weakened for a sixth day against the U.S. currency, depreciating 0.8 percent to 8.2248.

Read the full article here: