March 5, 2012 / 4:26 AM / 5 years ago

China worries hit growth currencies

4 Min Read

A picture illustration of U.S. dollar, Swiss Franc, British pound and Euro bank notes, taken in Warsaw January 26, 2011.Kacper Pempel

SYDNEY (Reuters) - Commodity currencies stayed under the cosh in Asia on Tuesday, having suffered a shakeout overnight as investors cut bullish positions after China announced its lowest annual growth target in eight years.

This took some pressure off the euro, which recovered from a two-week low against the greenback as it roared higher on the Australian and New Zealand dollars.

The euro stood at $1.3216, having slid as low as $1.3160. Against the Aussie, it fetched A$1.2384 after climbing nearly 1 percent on Monday. It jumped more than 1 percent on the kiwi to NZ$1.6107.

"Notable is that the New Zealand dollar, the risk darling of early 2012, is currently suffering more than Australian dollar, suggesting that a broader risk-off, not just commodity price, story is at play here," BNP Paribas analysts wrote in a note.

The firmer euro saw the dollar ease a touch against a basket of major currencies .DXY. The greenback also retreated on the yen, after failing to break above a nine-month high of 81.86 for a second time. It was last at 81.52.

China's growth target of 7.5 percent barely caused a ripple in financial markets when first announced in Asia on Monday as Beijing is known to set the bar pretty low so as to easily exceed it.

But investors in Europe and the United States appeared to have used it as an excuse to take profits on long positions in commodities like copper and currencies linked to global growth.

This saw the Australian dollar shed nearly a full cent to one-week lows of $1.0656. But it was still up 4.3 percent this year. Likewise, the kiwi plumbed a five-week low at $0.8203, but was still up around 5.6 percent so far this year.

"I'm seeing this as a significant correction after a strong rally at the beginning of the year. There is potential to see the Aussie get back down to 1.05," said Greg Gibbs, strategist at RBS in Sydney. But Gibbs expects the Aussie to recover in the second half of the year, believing it will again re-test $1.10.

Traders said the bigger picture hasn't really changed. Massive liquidity injections from the major central banks and ultra-low interest rates in the United States and Europe meant there is still a lot of money chasing after higher yielding assets.

Highlighting this, German Chancellor Angela Merkel expressed understanding for problems facing emerging countries due to a flood of cheap money from leading industrial nations, shortly before meeting Brazil's President on Monday.

But analysts said markets are reaching a point where they no longer expect further stimulus from major central banks, at least for the time being, and this could make risky assets more vulnerable to waves of correction.

In a move likely to cement the Aussie's high-yield status, the Reserve Bank of Australia is seen almost certain to keep its 4.25 percent cash rate unchanged at its March 6 meeting.

Recent comments indicated the central bank is happy with the current policy setting. Investors, however, are keen for clues on future rate moves and if the RBA will touch on the Aussie's strength.

In a rare piece of good news from Europe, major Greek bondholders voiced their support on Monday for a deal that will more than halve the value of their holdings as their contribution to keeping the country afloat.

Ahead of the Thursday deadline, Greece and its creditors are in the final stages of talks aimed at a deal that would cancel more than 100 billion euros ($132 billion) of its private sector debts - a key part of a 130 billion euros bailout, the second rescue Athens has required.

Editing by Wayne Cole

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