By Tom Westbrook
SINGAPORE (Reuters) – Commodity currencies hit multi-week lows on Wednesday, tracking weakness in Chinese demand, while the yen rose as short sellers bailed out ahead of a central bank meeting.
In Europe, purchasing managers’ indices will be particularly closely watched later in the session to see if they support bets on two European rate cuts by the end of January.
The euro was at $1.0848 in Asian trading and sterling, which could rise if Britain’s PMIs surprise on the upside and bets on rate cuts ease, bought $1.2901.
Markets are pricing in a 44% chance of a 10 basis point rate hike in Japan next week and speculators, also spooked by a few rounds of suspected currency intervention from Japan, are making profitable carry trades financed in yen.
Dollar/yen fell almost 1% overnight to 155.55 and traded close to 155.78 early in the Asia session.
Moves in other pairs were even bigger, with the euro falling 1.3% against the yen overnight, hitting a five-week low of 168.79 yen in Asia. Mexico’s high-yield peso fell 2% against the yen overnight and the Australian dollar has fallen almost 6% against the yen in two weeks.
“The yen was super, super cheap,” BNZ senior strategist Jason Wong said in Wellington. “But thanks to intervention, a lot of short position holders are taking money off the table ahead of the Bank of Japan meeting next week.”
Declines in oil, iron ore and prices, as well as a wave of risk aversion in equities, have dragged currencies such as the Australian, New Zealand and Canadian dollars lower against the US dollar.
The price hit a five-week low in early trading on Wednesday, just below $0.6612. The New Zealand dollar was hovering near Tuesday’s two-and-a-half-month low of $0.5951.
Chinese growth data missed expectations last week and surprise interest rate cuts on Monday have focused attention on the bleak outlook for commodity demand, pushing key commodities such as iron ore and copper to their lowest levels in three months on Wednesday.
The Canadian dollar hit a six-week low of C$1.3787 per dollar ahead of a central bank meeting later on Wednesday, where markets priced in an 84% chance of a 25 basis point rate cut.
At 104.5, this was almost the highest point in two weeks. was steady at 7.2909 in offshore trading.
Further afield, traders are awaiting US GDP and core PCE data due later this week to test expectations for two US rate cuts for the remainder of this year. Australia’s second quarter inflation data will be key to assessing the risk of another rate hike.
