February 6, 2018 / 6:59 AM / 2 years ago

FOREX-Dollar holds firm as investors scurry to safety amid equities sell-off

* Dollar supported by risk-aversion; EM Asia FX down

* Dollar on defensive, however, against yen as equities sink (Updates prices, adds comments)

By Shinichi Saoshiro

TOKYO, Feb 6 (Reuters) - The dollar stood tall on Tuesday as a rout in global equities prompted anxious investors to cut exposure to riskier assets and seek shelter in the relative safety of the greenback.

The U.S. currency held firm against most of its counterparts, although it slipped against the yen, which is viewed as a safe haven in times of market turmoil due to Japan’s current account surplus.

The dollar slipped to as low as 108.46 yen as the shakeout in equities persisted in Tuesday’s Asian trade, but later pared its losses and last changed hands at 108.93 yen, down 0.1 percent on the day.

Investor risk aversion triggered a drop in U.S. bond yields, leading to the fall in the dollar against the yen, said Sim Moh Siong, FX strategist for Bank of Singapore.

“I would see 107 to 108 as the next support for dollar/yen,” Sim said, adding that if the selloff picks up further steam the dollar could fall towards 104 yen.

The U.S. 10-year Treasury yield slid about 8 basis points to 2.719 percent in Asian trade, down from a four-year high of 2.885 percent set on Monday.

The dollar’s index against a basket of six major currencies stood at 89.605. Since Friday, when the selloff in equities began in earnest, the index has gained about 1.1 percent.

Emerging Asian currencies retreated, with the Indonesian rupiah touching a three-month low of 13,605 per dollar at one point.

Analysts at Maybank Kim Eng said Asian markets will probably show more resilience against the recent rise in U.S. Treasury yields, compared to the “taper tantrum” episode in 2013.

“The global growth backdrop has changed, as 2013 was still a ‘divergent’ world when Asia export growth was weak,” they said in a research note, adding that countries like Thailand have seen a sharp improvement in the current account balance since then.

The U.S. currency was on the back foot as recently as of late January, when the dollar index fell to a three-year trough of 88.438, hurt by a range of factors including concerns about U.S. trade protectionism and perceptions of narrowing yield advantage.

It caught a break, however, lifted by Friday’s robust U.S. employment report and the punishing sell-off in the recently bullish global equity markets.

“We are seeing a big rewinding of positions that had been built up since the start of the year, such as euro longs,” said Masafumi Yamamoto, chief forex strategist at Mizuho Securities in Tokyo.

“The stock market plunge caused by the jump in yields has been the trigger. Investors hurting from the drop in equities are seen trying to limit their losses by selling recently bullish currencies like the euro, which in turn supports the dollar.”

The euro edged up 0.1 percent to $1.2384, regaining a bit of footing after shedding 0.7 percent on Monday.

Equities remained under pressure on Tuesday, with markets in Asia taking a battering, while U.S. S&P futures tumbled by as much as 3 percent to four-month lows. S&P futures later pared their losses and were last down 0.9 percent.

That came after the Dow, which rose to a record high late in January, fell 2.5 percent on Friday and plunged 4.6 percent on Monday.

The sharp pullback comes amid concerns about higher inflation, sending U.S. 10-year bond yields surging to a four-year top on Monday.

Friday’s U.S. jobs report was the latest jolt to financial markets, as strong wages growth reinforced the inflation and monetary tightening speculation, with traders betting the Federal Reserve might raise rates at a faster pace than expected this year.

The Australian dollar fell 0.3 percent to $0.7857, pulling further away from a 2-1/2-year high at $0.8136 set on Jan. 26.

Australia’s central bank kept interest rates steady on Tuesday as expected and sounded upbeat about the country’s economy even as global markets went into a tailspin. (Reporting by Shinichi Saoshiro; Additional reporting by Masayuki Kitano in SINGAPORE; Editing by Shri Navaratnam and Sam Holmes)

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