* Yen broadly firmer in otherwise lacklustre session
* Risk appetite curbed by worries over China, Ukraine
* Aussie underperforms among major currencies
By Patrick Graham
LONDON, March 12 The concerns about China and
other developing economies that are 2014's major theme so far
came back to haunt foreign exchange markets on Wednesday,
weakening the Australian dollar and other currencies closely
linked to commodities markets.
Sufferers in chief were the Aussie, the Chilean peso
, which weakened more than 1 percent in American trade
overnight, and South Africa's rand, all of which are
usually correlated to the prices of iron, copper and other raw
Copper prices in Shanghai fell five percent overnight.
London prices were close to their lowest in more than three
years, a reaction to the first bond default in China and the
financial stresses it represents.
That was a net positive for the yen, a safe haven in times
of economic stress, but had little visible impact on the other
major currencies, where a dip for sterling to its lowest this
year against the euro was by far the biggest move.
The Aussie, which fell in the final quarter of last
year but has recovered some ground since mid-January on the back
of improving domestic growth, was down another 0.4 percent after
losing 1 percent in the U.S. trading day on Tuesday.
"The commods story is trumping everything," said Graham
Davidson, a spot dealer with National Australia Bank in London.
"The Aussie was certainly well-supported into the end of
last week, justifiably on a fundamental basis in my view, but it
has traded very, very heavy the last few days."
Slowing growth and financial sector problems in the world's
second-biggest economy have been a dominant theme of 2014,
keeping currency market investors in safer plays like the
Japanese yen and Swiss franc.
"If there's any dominant theme, it's one of 'risk-off' given
the concern over the slowdown in China and its financial
problems," said Daragh Maher, a strategist with HSBC in London.
"The next break in that might not come until we see more Chinese
Chinese industrial output, investment and retail sales
figures are all due at 0530 GMT on Thursday.
Neither euro zone industrial production numbers nor comments
from European Central Bank officials had much influence
After a boost following last week's ECB meeting, the euro
has struggled to make further ground, bouncing off levels around
$1.3915. Maher said he did not feel it looked capable of
breaking through $1.40 as flagged by some analysts this week.
"I suspect there will be a temptation to sell any rallies
(in the euro) from here," he said. "But it's not where the focus
is this morning."
Vincent Crimmins, head of FX strategy and trading at the
Bank of Ireland in Dublin, pointed to a close correlation in
recent times between euro-dollar exchange rates and the
benchmark U.S. and German stock indices
"The DAX is down about 5 percent from recent highs, yet the
S&P is just a percent lower. So if the S&P starts to price in
these risks, then we'll see Euro/Dollar trade lower," he said.
"I'd be bullish Dollars here. The S&P will have to price in
some of the risks out there - running from China corporate bond
defaults, Crimean tensions - and the ECB's unwillingness to ease
last week is a potential headwind to growth in the Eurozone."
There were indications that the fall for the Aussie might
also have been worse. Almost 40 percent - or around 3 billion
Australian dollars - of a sale of government bonds maturing in
2026 went to foreign investors on Wednesday, meaning bond
investors may have had to buy the Aussie as it fell.
The yen, steadier so far this year after losing a fifth of
its value against the dollar in 2013, was holding strong in
early European trading, up 0.1 percent against both the euro and
Dealers said the rouble was propped up by central
bank support as Russian stock indexes fell again on Wednesday,
reacting to the growing chance of western sanctions over Crimea.
"China seems to be slowing down and the Russian economy
seems to be facing pressure as stock prices there have fallen
sharply. That could slow emerging economies further," said
Takako Masai, manager of forex at Shinsei Bank in Tokyo.
"There is real concern about the global economy at the
moment, even if some short-term players may be thinking that the
impact of the Ukraine crisis will gradually subside," she said.