Yen Gains as China Slowdown Spurs Growth Concern; Rand Rises

By Andrea Wong  Feb 25, 2014 10:05 AM PT

The yen advanced the most in more than three weeks against the dollar as a slump in China’s currency and its stock market stoked concern growth in the world’s second-biggest economy is slowing.

Japan’s currency gained versus most of its 16 major peers while the yuan tumbled the most in more than five years on bets the central bank wants an end to the currency’s gains. Investors’ demand for the haven currency rose after a Russian official said Ukraine faces a “high” chance of defaulting on its sovereign debt. South Africa’s rand reached a six-week high as a report showed the economy grew more than forecast in the fourth quarter.

“Risk aversion continues to play a role in dollar-yen,” Robert Sinche, a global strategist at Pierpont Securities Holdings LLC in Stamford, Connecticut, said in a phone interview. “It’s a bit surprising, given there’s been some big moves happening in China and other markets,” that moves in the currencies market are limited, Sinche said.

The yen strengthened 0.3 percent to 102.16 per dollar as of 1:02 p.m. New York time, reaching the biggest advance on a closing basis since Feb. 3. The euro rose 0.1 percent to $1.3751. Japan’s currency climbed 0.2 percent to 140.48 per euro.

Price Swings

JPMorgan Chase & Co.’s volatility index for the currencies of the Group of Seven nations fell to 7.50 percentage points, touching the lowest since Oct. 28.

The yuan dropped for a sixth day on speculation the People’s Bank of China is attempting to ward off speculators before a possible widening of the trading band. The Shanghai Composite Index (SHCOMP) slumped 5.1 percent in the past four days on speculation that a weaker housing market will erode demand for everything from electric appliances to cars.

“Some investors may link the weakening of the yuan to a less optimistic outlook,” said Zeng Xianzhao, an analyst at Everbright Securities Co. in Chongqing. “Property financing curbs will probably be prolonged and other banks will follow suit. The slowdown in the property sector will spill over to other industries.”

The currency fell 0.5 percent to 6.2310 per dollar, according to China Foreign Exchange Trade System prices. That’s the biggest drop since December 2008.

Yuan Trade

The spot rate ended the day weaker than the central bank’s reference rate for the first time since September 2012. It can diverge by a maximum 1 percent from the fixing, which was set at 6.1184 today.

Volume in over-the-counter options on the dollar-yuan exchange rate amounted to $20 billion, the largest share of trades at 41 percent, according to data reported by U.S. banks to the Depository Trust Clearing Corp. and tracked by Bloomberg. Dollar-yuan options trading was 208 percent more than the average for the past five Tuesdays at a similar time in the day, according to Bloomberg analysis.

The rand gained as Africa’s biggest economy recorded faster expansion, led by a recovery in mining and manufacturing.

Gross domestic product growth accelerated to 3.8 percent in the three months through December from an annualized 0.7 percent the previous quarter, the statistics office said in a report in the capital,Pretoria. The median estimate of 21 economists in a Bloomberg survey was 3.4 percent.

Rand Rally

Stronger growth may ease pressure on fiscal targets to be set by Finance Minister Pravin Gordhan as he prepares to present his annual budget to lawmakers tomorrow.

“The GDP number increases the likelihood of a positive surprise on the revenue side that may impact on the deficit, and people are positioning for that,” Mohammed Nalla, head of strategic research at Nedbank Group Ltd., said by phone from Johannesburg. “We’re seeing some offloading of long-dollar positions.”

South Africa’s currency advanced 0.7 percent to 10.7197 per dollar, a fourth day of gains.

Russia, which suspended its $15 billion aid package to Ukraine last week, opposes the inclusion of its first $3 billion tranche in a possible restructuring, Deputy Finance Minister Sergei Storchak told reporters in Moscow today. There’s a “slight” risk Ukraine won’t repay the first installment of the bailout and Russia is under no legal obligation to provide the remaining amount, he said.

Euro Pressure

“Ukraine may not be able to pay its debt and euro-dollar seems to be reacting a little bit of that,” Brad Bechtel, managing director at Faros Trading LLC in Stamford, Connecticut, said in a phone interview. “We’re not out of the woods yet in Ukraine. There’s question on domestic financing capability. We’ll see a lot more noise from them.”

Ukraine’s currency plunged as the nation’s parliament delayed a vote on a national unity government, creating a potential drag on efforts to obtain aid.

The hryvnia, which is managed by the central bank, weakened 6 percent to 9.7250 per dollar, extending its drop this year to 16 percent.

The dollar fell against most of its major peers as Citigroup’s U.S. Surprise Index, which shows if data beat or fell short of economists’ forecasts, fell to minus 14.6, the lowest since July 15. The measure rose to 72.7 in January, the most since February 2012, before severe winter weather began weighing on economic data.

“The Surprise Index is continuing to plummet and I guess that is going to keep the dollar probably on the back foot until there is some degree of reversal in that sentiment,” said Jeremy Stretch, head of currency strategy at Canadian Imperial Bank of Commerce in London. “There’s obviously still a lot of debate about how much is weather impacted or not, but the slide in the Surprise Index is still relevant.”

The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major currencies, fell 0.1 percent to 1,018.38. It has dropped 1.3 percent this month, the most since September.

To contact the reporter on this story: Andrea Wong in New York at awong268@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net