Euro bounced in Asia on short covering after a huge sell off on Wednesday following a poor German bond auction which failed to get the full amount of bids. Euro fell to a six-week low against the dollar as investors unwound risky assets on fears of euro zone debt engulfing the whole region. EURUSD retraced to 1.3383 from a low of 1.3614.
Commodities took a big hit as well on risk aversion, especially in reaction to weak Chinese factory data on Wednesday which revived fears of a global recession. Declining gold, crude oil and copper prices weighed on high-yielding currencies like the Australian and Canadian dollars. Crude oil slid by over 2 percent on Wednesday to below $96 a barrel. Canada is a major exporter of crude oil and as a result the Canadian dollar weakened to a seven-week low against the US dollar by later Wednesday. USDCAD was little changed in Asian trading as the pair paused for a correction, trading between 1.0481-1.0463.
Meanwhile, demand for “global cash” has led to a strengthening of the dollar. The greenback is perceived as a safe haven in times of financial market stress because it is very liquid and is used as a global reserve currency.
The yen, which is also regarded as a safe haven, may not benefit under the current circumstances. Japan has warned about letting the Japanese currency gain too much strength so investors are cautious. The Bank of Japan has intervened in the currency markets three times this year to cap yen. In Asian trading today, traders were playing catch up after the Japanese public holiday on Wednesday and bought up yen for their order fixing which resulted in USDJPY falling 77.00 from 77.57.
The Australian and New Zealand dollars found a temporary footing in Asian markets due to short-covering, but still nursed heavy losses for the week as fear of Europe’s debt crisis pushed investors away from risk. The aussie and kiwi and commodity-price sensitive currencies and were greatly affected by China’s weak manufacturing data. AUDUSD fell to a six-week low of 0.9662 on Wednesday. NZDUSD pauses after falling seven sessions in a row, to rest above 0.7385, supported by better than expected New Zealand trade balance data.