Published December 13, 2008

Yen hits 13-year high as risk aversion returns

Failure of US carmaker rescue plan sends investors running for safe havens

By LARRY WEE
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NEWS that US lawmakers had failed to pass a US$14 billion rescue package for US carmakers hit Asia with a sledgehammer yesterday, lifting the safe refuge yen to fresh 13-year peaks of S$1.6899 per 100 yen and 88.4 yen per US dollar, while forcing Asian stocks sharply lower.

What may have made the currency moves 'extra-large', traders explained, was that the news hit the street during thinned out lunch-time trading hours in Asia yesterday, and this certainly was a factor in pressing the yield on safe refuge US Treasury issued to fresh lows as well. The yield on benchmark 10-year US Treasuries, for example, tumbled to yet another record low of 2.48 per cent before recovering above 2.5 per cent by the close.

And risk aversion jumped as the region's benchmark stock indices tumbled as much as 6-7 per cent in the wake of news that Republican senators had voted out the compromise rescue deal crafted for US lawmakers after Thursday's stock market close in the US.

In line with what has become a familiar pattern more recently on the currency front, the flight for safety caused the US dollar and yen to surge sharply against most of their weaker counterparts - though between them, the greenback tumbled against the yen.

The Australian dollar and South Korean won suffered some of their worst relapses versus the US dollar yesterday, while the UK pound and New Zealand dollar were dragged down to fresh multi-year lows versus a sharply higher yen - at 132.66 yen and 48.22 yen respectively - before recovering some poise by the Asian close.



Before that, however, news of the US car rescue failure was bad enough to wipe out all of the gains versus the yen that the pound, Australian dollar and its New Zealand counterpart had painstakingly clawed back between Monday and Thursday this week.

By the close of Asian trading yesterday, the trio were between 2.5 and 3.5 per cent weaker from Thursday in yen terms - at 134.29 yen, 58.98 yen and 49.27 yen respectively.

Locally, the return of risk aversion saw the US dollar back spike more than one Singapore cent above the fresh one-month low of S$1.4780 that it recorded in early Asian trading yesterday morning, to end the day about unchanged from Thursday, at S$1.4932.

On the other hand, the return of risk aversion sentiment saw the Australian dollar nosedive more than three Singapore cents in Asian trading, from a morning high of just above one Singapore dollar to an afternoon low of just below 97 Singapore cents, before ending the day one per cent worse off at 97.52 cents. The yen also trimmed some of its biggest intra-day gains, but still finished the session 2.2 per cent higher each at S$1.6534 per 100 yen and 90.31 yen per US dollar.