While the closing days of 2015 were a mostly quiet affair for financial markets, the beginning of 2016 has certainly seen some action. In risk assets such as stocks but for the foreign exchange market too, there have been some sizeable moves, which have provided a useful lesson in that market participants need to be ready for turbulence at any time – even during or right after seasonal holidays.
In terms of major currencies, the Japanese yen appears to have been the main beneficiary, as risk aversion tends to boost the yen. Japan’s currency has been up by more than 1% versus the US dollar and by almost 3% against the euro. The euro has therefore been on the receiving end of some serious selling, as it has fallen by more than a percent against the dollar and has fallen by around 0.75% against the pound. The euro has been hurt by some worse-than-expected inflation statistics out of both Germany and the Eurozone as a whole, while a slightly upwardly revised Markit final Manufacturing PMI did little to rescue the single currency from dipping below 1.08 against the dollar and 130 versus the yen. The euro interestingly failed to act as a safe haven, while another traditional safe haven, the Swiss franc also posted a loss against the US dollar (around 0.65%).
In other currencies, the antipodeans such as the kiwi and the aussie have also been under selling pressure. The Australian dollar was pushed much lower on the very first day of the year as bad news came out of China in terms of a crashing stock market and yet another incremental drop in the value of the yuan. As China is the top export destination for Australian resources, negative developments in China can affect the aussie in a major way. The aussie dropped by more than 1.5% versus the greenback. The kiwi also fell as New Zealand is another commodity exporter to China and there was also a drop recorded during the latest milk auction.
Despite the negative tone in a number of markets, oil held and did not break below $36 a barrel as renewed tensions between Iran and Saudi Arabia, the Middle East’s top oil exporters, provided some support to the price. Most pundits remain negative on oil however.
To sum up, it has been a volatile beginning to the New Year, with concerns about China mounting, the euro and commodity currencies selling off and the yen fulfilling its role as a safe haven.
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