Forex markets shuddered on Monday as investors fled commodity-linked currencies.
Photo: jung yeon-je/Agence France-Presse/Getty ImagesForeign-exchange markets convulsed, as steep drops in oil and shares sparked a flight from commodity-linked currencies into the perceived safety of the Japanese yen and the U.S. dollar.
In Asian trading hours on Monday, the Australian dollar briefly fell as much as 4.9% to a low of US$0.6312 before recovering to finish 1.8% lower. The New Zealand dollar also dropped sharply in just a few minutes to a low of US$0.6109, before recovering to $0.6250.
Meanwhile, the yen jumped to trade below 103 per U.S. dollar, its strongest point since 2016.
“What we’ve seen is dislocation and dysfunctional markets consistent with fear and uncertainty,” said Su-Lin Ong, head of economics at RBC Capital Markets in Sydney.
Monday’s moves came as oil prices tumbled by nearly 30% after Saudi Arabia moved to cut most of its oil prices and boost output.
Sean Callow, senior currency strategist at Westpac in Sydney, said individual investors in Japan might have fueled the moves as they rushed to dump higher-yielding currencies.
“All eyes are on Japanese investors as the likely culprits for the Australian dollar’s flash crash,” Mr. Callow said.
He and other market watchers pointed to a steep shift in the Australian dollar-yen exchange rate as supporting that explanation. At the open, A$1 bought ¥69.97, but this rate collapsed to ¥65.50 before later recovering somewhat to ¥66.98.
Ray Attrill, global head of foreign-exchange strategy at National Australia Bank, said the bulk of the selling came from Japanese investment funds. “It all had a fundamental catalyst in the collapse in oil prices,” he said.
The yen has also been buoyed by the Federal Reserve’s moves to cut U.S. interest rates, reducing the gap between American borrowing costs and those in Japan, which already has ultra-low and in some cases negative interest rates.
Ryutaro Kono, a Tokyo-based economist at BNP Paribas, said the yen’s strength was troubling for the Fed’s counterparts at the Bank of Japan.
Since international political pressure made it hard for the finance ministry to intervene directly, “the BOJ signaling the possibility of rate cuts is the only way to stop the yen’s appreciation” he said. But given negative rates tend to hurt banks and other financial firms, he added: “It would be the wisest choice for the BOJ to be patient and not take any action.”
—Megumi Fujikawa in Tokyo and Stephen Wright in New Zealand contributed to this article.
Write to James Glynn at james.glynn@wsj.com
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