The yen soared versus its peers on Thursday, breaking through key technical support levels as heightened global growth risks pushed investors into safe haven-assets in moves exacerbated by thin holiday volumes.
Charging the risk averse mood was a rare revenue warning from Apple Inc, which added to worries about fading global demand.
Apple cut its sales forecast for its latest quarter, citing slowing iPhone sales in China. That followed a series of surveys that showed factory activity weakening across much of Europe and Asia in December.
Market participants fled to the safety of the highly liquid Japanese yen, which rose 1.4 percent versus the dollar on Thursday, fetching 107.26.
In early Asian trade, the dollar tumbled to an intra-day low of 104.96 yen, its lowest since March 2018 before recovering some of its losses as trading progressed.
The spike in risk aversion triggered massive stop-loss flows from investors who had held short positions on the yen for months. A lack of liquidity, with Japan still on holiday after the New Year, added to the sharp surge.
Market participants described the move as a “flash crash” in major currencies against the yen, driven primarily by technical, not fundamental, factors.
Longer-term, however, analysts see other reasons for the yen to rise.
“The yen is undervalued and can strengthen both if the dollar weakens across the board, but also if our broadly positive view that the global economy will stabilize at potential growth this year proves to be wrong, the Fed pauses and/or we get a risk-off market correction-as we saw at the end of 2018,” said Athanasios Vamvakidis, FX strategist at Bank of America Merrill Lynch.
The Australian dollar, often considered a gauge of global risk appetite, fell to its lowest level since 2009 in early Asian trade to an intra-day low of $0.6776.
It last traded at $0.6943, down 0.59 percent. Weaker-than-expected data out of China, Australia’s largest trade partner has taken the shine off the Aussie dollar in recent weeks.
Analysts think the outlook for the Aussie dollar can improve if there is significant progress in U.S.-Sino trade talks which are scheduled to take place later this month.
“These talks need to yield agreement to a reasonably comprehensive deal as a minimum prerequisite for a recovery in global risk asset sentiment and a stronger Australian dollar,” said Ray Attrill, head of currency strategy at NAB in a note.
“If so, we’d expect Aussie dollar to be trading back reasonably comfortably above 0.70 before Q1 is out.”
Against the yen, the Aussie dollar fell 2.08 percent to 74.47.
The dollar index against other major currencies fell 0.28 percent to 96.551.
After a strong 2018, analysts expect the dollar to come under pressure in coming months with diminishing prospects for U.S. central bank rate hikes in 2019, which has driven Treasury yields lower.
The yield on U.S. 10-year treasuries fell to 2.63 percent, the lowest in nearly a year on Wednesday.
Federal Reserve chairman Jerome Powell speaks in Atlanta on Jan. 4. Any acknowledgement that growth risks are building and financial conditions are tightening is likely to be read by traders as a dovish policy signal.
Elsewhere, sterling fell 0.49 percent to $1.2545 on Thursday.
The euro was higher at $1.1364 in Asian trade. On Wednesday, the single currency fell 1 percent after data showed manufacturing activity contracted in Spain, France, Italy, and Germany.