Asian Currencies Plunge On Lackluster Data

Lackluster Chinese trade data as well as a declining PPI report over the weekend has spooked the Asian currency market on Monday morning. The AUDUSD tumbled 23 points while the kiwi is down 30 points at 0.6607 as traders are now hoping that the PBOC will step in with aggressive action to help support the declining manufacturing sector.  Chinese exports tumbled 8.3 percent in July, their biggest drop in four months and far worse than expected, reinforcing expectations that Beijing will be forced to roll out more stimulus to support the world’s second-largest economy.

Imports also fell heavily from a year earlier, in line with market forecasts but suggesting domestic demand might be too feeble to offset the weaker global demand for China’s exports. Economists had forecast exports to fall just 1 percent, after a 2.8 percent uptick in June, but the data on Saturday showed depressed demand from Europe and the first drop in exports to the United States, China’s biggest market, since March.

Asian markets are trading on a mixed note owing to disappointing release of economic data from China that showed a slowdown in its economy thereby creating jitters in the Asian markets. Moreover, rising speculation of US rate hike has kept the markets on a defensive mode.

The Japanese currency was weighed down by worries from China, but this morning’s current account weakened the JPY farther.  Japan’s current account surplus and trade surplus both shrank in June, coming in below market forecasts. The current account surplus came in at Y558.6bn in June from a year earlier, down from a surplus of Y1.88tn in May, and below economists’ expectations of Y785.9bn. It remained in the black for the 12th straight month, however. On an adjusted basis, the surplus slipped to Y1.3tn in June from Y1.64tn in May, and below expectations of Y1.4tn.

The yen appreciated by 0.2 percent in the last week after the Greek stocks plunged by more than 16 percent, hammering banks after 5-week crisis shut down which prompted the government officials to put limits on trading that weighed on global markets. This boosted the demand for the safe-haven currency. Moreover, in the recent BOJ meeting the governor stated that there is no need for additional easing as the monetary policy aimed to lift the economy out of deflation which was working as expected. This invited traders’ speculation and kept the currency slightly volatile.

However, sharp gains were restricted owing to hawkish comment by the Federal Reserve Chairwoman that boosted the demand for the greenback and acted as a negative factor or the currency.

The Dollar Index strengthened by 0.2 percent in the last week as the market is still discounting the hawkish comment by the US Federal Reserve. On the Euro-zone front, the Greek stocks plunged to more than 16 percent prompting the government officials to put limits on trading. This weighed on global markets which boosted the demand for the greenback due to its safe-haven attributes.

However, disappointing release of manufacturing and employment data from the nation dampened optimism over the strength of the economy and fanned hopes that Fed officials could delay raising interest rates till the very end of 2015. The dollar made a weekly high of 98.43 and closed at 97.67 this morning.