EURUSD declined in Asia to extended losses from post-FOMC statement that said there were “significant downside risks” to the economy. Though “Operation Twist” was expected, markets were hoping the Fed would take bolder measures to spur economic growth. Dollar gained as risk aversion picked up. What helped support dollar were the Fed’s move to push up short-term rates and its decision not to increase the money supply. Meanwhile with the Fed meeting over, the focus shifts back to the euro zone debt crisis. EURUSD fell to a session low of 1.3531 from a high of 1.3599.
GBPUSD opened Asia at 1.5498 to extend its decline to 1.5444 as investors view the Fed’s Operation Twist will not do enough to support the US economic recovery, and so they turned away from risk into safe havens like the liquid U.S. dollar.
AUDUSD opened in Asia at 1.0004 and after consolidating it continued to fall to a low of 0.9992 as investors sold off risky commodity-linked currencies like the Australian dollar, in favour of the safe haven greenback. The aussie was further hurt after HSBC’s China Flash PMI showed a drop to 49.4 in September, from 49.9, despite rumours of a stronger number. China is a key trading partner for Australia and is affected by Chinese data.
New Zealand dollar hit a four-month trough after soft growth data fuelled speculation that the central bank will not hike interest rates soon rises. The NZ economy almost stalled in the second quarter, growing only 0.1 percent against expectations of 0.5 percent growth, as soft building and manufacturing sectors offset a strong agriculture performance. NZDUSD fell to a four month low of 0.7937 from a high 0.8062.
EURJPY fell to a ten year low in Asia as risk appetite was dampened following the Federal Reserve statement and its decision to unveil Operation Twist. EURJPY fell to 103.64, its lowest level since June 2001 as investors turned to the safe haven Japanese Yen. The pair soon bounced to 104.36 lifted by bargain hunters buying on the dip. Dollar strength across the board pushed up dollar-yen as well. USDJPY opened Asia at 76.51 and climbed to 76.96. Speculation that the BOJ cold intervene to curb yen strength “set a floor” for the Japanese currency, and so from a risk-reward perspective it is not so good to sell dollar-yen.
Spot gold slowed its decline in Asia after falling sharply in New York following the Federal Reserve decision to “twist” its balance sheet shifting some short term debt towards long-term securities. Gold remained under pressure of a stronger dollar, as gold and dollar have an inverse relationship. The precious metal fell from a high$1,786.15 to $1,772.60.