June 5, 2013 / 3:26 AM / in 4 years

Yen jumps, commodity currencies feel the heat

SYDNEY (Reuters) - The yen was sharply higher on Thursday as a rout in Japanese stocks forced investors out of popular carry trades, while commodity currencies were under fierce pressure with the Australian dollar wallowing at 19-month lows.

Euro and U.S. dollar banknotes are seen in this picture illustration taken in Prague January 23, 2013. REUTERS/David W Cerny

The moves came as a closely watched report showed hiring by U.S. firms was sluggish in May, raising the risk that Friday’s non-farm payrolls could disappoint.

The dollar was at 99.14 yen, having suffered a one-percent fall overnight, while the euro stood at 129.83 after a similar-sized decline.

Commodity currencies were even harder hit with the Australian dollar skidding nearly 3 percent to a three-month low of 94.18 yen. It was last at 94.42.

Traders said the fact that Prime Minister Shinzo Abe did not announce new bold steps to stimulate the economy in Wednesday’s speech further undermined stocks and led investors to unwind extremely bearish positions in the yen.

All eyes are now on the Japanese authorities to see if they can somehow staunch the bleeding in stocks, or the yen could rise a lot further.

A picture illustration shows U.S. 100 dollar bank notes and Japanese 10,000 yen notes taken in Tokyo August 2, 2011. REUTERS/Yuriko Nakao

The euro, however, advanced against the greenback, rising as far as $1.3118, a high not seen since May 9. Immediate resistance is seen around $1.3140, a level representing the 76.4 percent retracement of its May 1-17 fall.

The euro’s gain came ahead of the ECB’s policy meeting, where it is likely to hold off fresh action to see whether economic recovery materialises in the second half of the year as it expects.

“We see little scope for major policy developments and thus expect the euro to stay in its narrow range,” said Chris Walker, analyst at Barclays Capital.

“Although the euro has largely been immune to surprises in data releases, we expect two factors to change this. First, relative rates should eventually drive EUR/USD lower. Second, the concept of negative rates provides Mr Draghi with a tool for verbal intervention.”

Investors continued to sell commodity currencies, knocking the Australian dollar to a low of $0.9511 and putting it on track to test its 2011 trough of $0.9388.

The Aussie has come under renewed pressure after data on Wednesday showed the economy grew by a weaker-than-expected 0.6 percent in the first quarter.

Markets have since shortened the odds of another interest rate cut with debt futures giving a near one-in-two chance of a July rate cut.

Editing by Wayne Cole

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