Commodity Currencies Fell Victim to the Liquidation of High Yielders (page 2 of 2)

The only UK data released this morning was house prices, which grew less than expected in the month of May. Industrial production is due for release tomorrow. The weaker manufacturing PMI numbers suggest that overall production growth was weak in April.

Dow Continues to Fall Taking Yen Crosses down with It

The Japanese Yen is stronger across the board for no reason other than the panic selling in US stocks. There was no economic data released last night and machinery orders are the only piece of data due for release this evening. We continue to stress that the Yen crosses will take its cue from the movements in US stocks. Although the Shanghai index rebounded on Thursday morning, the sharp sell-off in the Dow today could prompt a reversal in Chinese stocks. Risk aversion is rising and carry trades are the primary victims. Further losses are very likely, but we will probably not see major losses as many central banks are still on track to raise interest rates this year. The Bank of Japan on the other hand has no reason to alter rates as the strength of the yen will automatically tighten their economy.

Commodity Currencies Fell Victim to the Liquidation of High Yielders

Even the commodity currencies could not hold up against the liquidation of high yielding currencies today. Both the Australian and New Zealand dollars hit fresh decade highs before turning around to the end the day weaker against the US dollar. The kiwi fell the most despite an interest rate hike by the central bank yesterday. The statement was hawkish and the futures curve is pricing in more rate hikes this year which indicates that the liquidation is clearly just a reflection of rising risk aversion. The Australian dollar held up far better although it too saw major intraday losses thanks to strong employment numbers. After seeing very strong job growth in April, Australian companies added 39k people onto their payrolls in the month of May. This brought the unemployment rate down to a 4.2 percent, which is a new 32 year low. The Canadian dollar also dropped despite the rise in oil. There was no Canadian data released this morning, which suggests that the traders may be looking for softer employment and trade figures tomorrow. April data has been weak and the strong CAD could have put a big dent in exports.