The Japanese yen edged higher and the euro was a touch softer in early holiday-thinned Asian trading on Monday, with other Asian currencies under pressure after the fatal blasts in Indonesia at the weekend.
Saturday’s bomb blasts in Bali that killed at least 183 people were expected to have more effect on the Indonesian rupiah and liquid regionals currencies such as the Singapore dollar and Thai baht than the majors.
”I think it will be more a concern for Asian currencies. The Singapore dollar and definitely also the Indonesian rupiah will face a bit of negative pressure,” Karl Broecker, head of treasury at Landesbank Baden-Wuerttemberg, said.
”But on the majors I would not see it, but in general it could harden the stance towards Iraq and it could cause some additional volatility, but I would not say it has a direct impact.”
The yen edged under 124 yen to the dollar in morning trade, while the euro was a touch above its New York close of 98,71 cents. Markets in Japan and Hong Kong are closed on Monday for holidays.
The outflow from Asian regionals after the attacks — the Singapore dollar and rupiah both hit five-month lows on Monday morning — was extending an existing trend of rising risk aversion over fears of war against Iraq, higher oil prices, slowing global growth and falling equity markets.
”I think that where the G3 currencies go, we’ve already seen quite a large risk premium being priced into the US dollar,” UBS Warburg currency strategist Naomi Fink said.
”So even though it could experience near-term fluctuations, I think quite a lot of the risk is already in there.”
While the Bali bombings will add to the move of investors away from Asia, investors are faced with the question of where to send their funds.
Japan’s economy remains lifeless, and the measures announced last week by the Bank of Japan to shore up the troubled banking sector failed to impress markets.
In the United States, the stock market’s first positive week after six of losses was tempered by some worrying signals from US consumers, a pillar of the economy this year. Retail sales fell 1,2% in September and consumer confidence slid to a nine-year low.
In Europe, Germany lowered its growth target and pushed out a plan to balance its deficit by two years to 2006.
”I think it is definitely not a strong point for the euro, it should limit possible euro gains,” Broecker said of the German news, but added the technical picture had been supportive of the currency recently.
Fink at UBS said the US dollar should find some support from a flow to Treasuries as global risk remained high, even though yields have already rallied substantially.
”Given that we don’t have any major shock, on an LTCM scale or a very long, drawn out war in Iraq…then I think the US dollar will stay supported into the medium term,” she said.
The US bond market is closed on Monday for Columbus Day, but the foreign exchange and share markets are open. – Reuters