Asian Currencies Adjust, Correct & Recover

Traders remain weary on Tuesday morning but are taking advantage of the over reaction on Monday to worries from China. Currencies, commodities and equities crashed on Monday with the Dow falling close to 1000 points at the open. The Dow was able to recover slightly before closed down 600 points. Commodity currencies took the biggest hits as oil and base metals fell around the world. The New Zealand dollar suffered the same fate to trade below the 0.64 level and recovered to 0.6521 this morning. The Aussie dollar is trading at 0.7196 recovering a bit after falling to the 0.70 level on Monday.

On Monday equities across Asia dropped on growing fears over the pace of growth in China after a gauge of manufacturing on Friday sapped equity markets on Wall Street and in Europe. China’s Shanghai Composite index was down 8.6 percent in afternoon trading, while Japan’s Nikkei 225 index fell 4.1 percent and Australia’s S&P/ASX 200 index declined 3.6 percent. The dwindling demand for stocks eroded investors’ appetite for other risk-sensitive assets, including the kiwi dollar, which is also exposed to China’s economy through New Zealand’s reliance on exporting to the world’s most populous nation.

Investors are watching to see if Chinese policymakers attempt to intervene in the stock market slump after media reported officials had approved efforts to prop up equities. The kiwi dropped to 4.2145 Chinese yuan at 5pm in Wellington from 4.2689 yuan on Friday in New York. Many analysts believe that there is no amount of stimulus that can be offered by the PBOC to turn around the Chinese economy and bump the manufacturing sector back to its previous levels.

The Japanese yen is trading at 119.78 in the early session as the dollar recovered from Monday’s plunge to trade near the 93 price and is holding at 93.79 this morning. The yen gained on safe haven trading as traders sold off in droves and moved to the yen and the euro on Monday. The EURJPY added 66 points as traders sold off the yen to book profits as markets made a mild correction. The pair is trading at 138.25.

The euro dipped in the Asian session to trade at 115.40 after touching above the 1.16 level as traders in a surprised effort turned the euro into a safe haven currency. The paid dipped 79 points on Tuesday morning giving back a good deal of Monday’s gains. The greenbacks performance on Monday wasn’t entirely negative. It posted large gains against emerging-markets currencies and the so-called commodity dollars — the Canadian Australian and New Zealand dollars— as prices for crude oil, copper and other industrial commodities continued to fall. Many emerging-markets economies are dependent on commodity exports, and are sensitive to moves in those assets.

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