The yen benefited from a flight to safety as stocks fell, while the dollar languished at three-week lows against a basket of currencies as expectations faded that the U.S. Federal Reserve will raise interest rates this year.
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Wall Street looked set to open flat, according to index futures.
China’s central bank expanded a scheme on Monday that increases banks’ ability to lend, boosting hopes of more measures to support the economy – lifting mainland Chinese shares to seven-week highs.
Despite a strong start to the fourth quarter for global stocks, investors remain concerned about the threat of slowing global growth even though central banks have pumped billions of dollars into their economies.
Didier Saint Georges, the managing director of the Carmignac investment committee said that the slowdown of the global economy would not have been that big an issue if deflationary pressures had not made it worse.
The Australian dollar tumbled 0.8 per cent against the Japanese unit to ¥87.63.
The USA dollar rallied against emerging currencies in Asia Tuesday as Chinese trade data showing an import slump fuelled anxiety about slower growth of the region’s largest economy.
“This China data increased the likelihood that they will ease further but if you look at the equity, dollar and commodity markets they don’t like it at the moment”, said Rabobank FX and metals strategist, Georgette Boele.
The CSI 300 index of the largest listed companies in Shanghai and Shenzhen rose 3.2% and the Shanghai Composite added 3.3%.
The USA bond markets were closed on Monday due to the Columbus Day holiday and market activity was light.
This was despite a number of Fed officials saying in recent days that a first hike since 2006 could still come before the year is out. But Stanley Fischer said that a rise in the interest rates this year “was an expectation and not a commitment”.
Instead, investors have focused on soft economic data and the Fed’s concerns about global economic growth.
Still, when the Fed does raise rates – whether this year or next – it will likely strengthen the US dollar, especially against emerging market currencies.
Also, the Yuan hit its all-time high level after the surprise devaluation in August.
“We could get a few further weakness in the dollar versus the euro and yen, but those two are mainly along for the ride”.
“I think this is a correction, not a trend reversal”, says Marc Chandler, global head of currency strategy at Brown Brothers Harriman.
On Wednesday the US Commerce Department said retail sales rose half as much as expected in September while it also revised down its August result. ECB President Mario Draghi said the bank was ready to adjust the size, composition and duration of its trillion euro asset-purchase programme. The index fell 1.1 percent in the 12 months through September, its eighth straight 12-month decrease. Brent fared a little better, edging up 0.3 per cent to $49.30 a barrel.
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Higher US interest rates make the USA currency more attractive to investors seeking yield.
