The yen stood tall on Thursday, after global central banks startled markets with heavy rate cuts and threats of more to come as world economic risks grow, boosting the appeal of the safe-haven Japanese currency.
The New Zealand and Australian dollars clawed back some of their heavy losses from the previous session. On Wednesday, both currencies tumbled after the Reserve Bank of New Zealand stunned markets with a bigger than expected interest rate cut and flagged the possibility of negative rates.
Broadening expectations of global monetary easing are now weighing on currencies such as the dollar and the euro, providing the yen with further support.
The yen was 0.15 percent firmer at 106.105 per dollar. It touched 105.500 overnight, its strongest level since Jan. 3, before pulling back slightly.
“The yen’s appreciation versus the dollar may have slowed for now, but it stands to keep gaining in the longer term,” said Junichi Ishikawa, senior foreign exchange strategist at IG Securities in Tokyo. “Its other peers, notably the antipodean currencies, have weakened severely and this provides overall support to the yen.”
The New Zealand dollar tumbled to a seven-year low of 67.58 yen on Wednesday and was last at 68.44. The RBNZ’s move on Wednesday was followed by central banks in Thailand and India signaling major concerns about the outlook of economic growth.
The New Zealand dollar traded at $0.6456, following a slide to a 3-1/2-year low of $0.6378 on Wednesday.
The Australian dollar was steady at $0.6761 after hitting $0.6677 overnight, its lowest since March 2009, as RBNZ’s rate cut fueled speculation that its Australian counterpart would soon follow. The Aussie was at 71.71 yen following a retreat to a decade-low of 70.74 yen on Wednesday.
A growing list of central banks have eased monetary policy in a bid to stave off negative effects of slowing global growth, while plunging yields have driven currencies lower.
“The decline in Treasury yields sets dollar/yen firmly on downward spiral as the market continues to price more Fed rate cuts. The European Central Bank looks set to ease in September, which will only support the yen even more,” Ishikawa at IG Securities said.
The euro traded at 118.92 yen after brushing a 28-month trough of 117.66 at the start of the week.
Interest rates futures suggested traders are building bets the Federal Reserve would cut rates three more times by year-end to avert a recession.
In the wake of such speculation, the 10-year U.S. Treasury yield sank to a three-year low of 1.595 percent on Wednesday.
The dollar index against a basket of six major currencies stood little changed at 97.587 after dipping 0.1 percent overnight.
The index rose to a 27-month high of 98.932 just a week ago after Fed Chairman Jerome Powell ruled out lengthy monetary easing, but it has since declined sharply on resurgent prospects of more rate cuts. The euro nudged up 0.1 percent to $1.1211.
China’s yuan was a shade weaker at 7.0867 per dollar in offshore trade, adding to the previous day’s losses. It was still off the record low of 7.1382 set on Tuesday.