Exchange Rate News: Markets Drop Aussie and Head for Safe-Haven Yen after Syria Airstrikes

07 April 2017 by News Desk   |   SHARE  

The Australian dollar fell against the pound (AUD/GBP), euro (AUD/EUR) and US dollar (AUD/USD) this week as investors flocked towards the Japanese Yen after the US launched missile strikes in Syria, say currency experts FC Exchange.

Investor Sentiment in Riskier Currencies Decline – Safe-Haven Assets Firm

The Australian dollar hit a one-month low versus the greenback in Pacific trading at 75.17. The yen rose in popularity as investors ditched their riskier currencies for safe-haven assets and the Aussie dollar fell to 82.84 against it, the lowest level since November. Gold managed to near a five-month high on the news. Markets don’t like uncertainty and concerns that the situation could escalate left the AUD vulnerable.

Industry expert at Sumitomo Mitsui Trust Bank Ltd, Ayako Sera, said: ‘Whether the market reaction is temporary or will continue will depend on the reactions from the international community. We can’t see that at the moment so it’s hard to digest. Investors are probably preparing to escape to safe-havens when the next news strikes.’

However, the Australian dollar had already been drifting lower before the Syria announcement due to economic red flags noted by the Reserve Bank of Australia (RBA). The central bank has recently expressed concern over the labour and housing markets as well as bank lending and the levels of debt in households.

The Aussie dollar is likely to remain lower as investors await more Syria developments.

Markets Await US Non-Farm Payrolls Data

The highly anticipated US change in non-farm payrolls ecostat may not have quite the same effect as it normally would in the market amid strikes in Syria and rising geo-political tensions. The March reading is expected to come in at 180K following February’s 235K. ADP employment data earlier in the week, that is viewed as a precursor to the non-farm figure, printed positively, suggesting that today’s number could also be favourable.

Pound Tracks Weaker Economic Data Lower

The start of the week was tricky for the pound with the release of some disappointing economic data. Monday saw Markit’s UK manufacturing purchasing managers’ index (PMI) fall below forecasts to 54.2, edging closer to the 50.0 precipice which separates expansion from contraction. Following this, Markit’s construction PMI dropped lower to 52.2, giving investors another reason to sell off sterling.

Banco Santander SA strategist Stuart Bennett suggested that the UK economy may be exhibiting ‘the first signs of cracking’. Bennett continued: ‘The pound is now a bit of a currency that when risk appetite declines, traders club together and say “with geopolitical risk, economic risk, Brexit risk, what do we do? We sell the pound.”’

However, the pound retraced its steps later in the week after Markit’s UK services PMI beat expectations. The figure jumped from 53.3 to 55.0, far higher than the 53.5 economists had expected.

Euro Sentiment Dampened by Dovish ECB Comments

The euro was offered little support from the European Central Bank (ECB) this week after President Mario Draghi and Chief Economist Peter Praet made comments that were received as dovish in the market. Praet implied that markets won’t see higher interest rates in the eurozone until after quantitative easing has finished. Meanwhile, Draghi suggested that although the currency bloc was recovering, it was ‘too soon to declare success’.

Markets are likely to expect very little deviation from this tone in the upcoming April 27th ECB Governing Council meeting and so the euro may find itself falling out of favour.

In addition, the fast-approaching French elections are likely to cause havoc for the single currency as the prospect of eurosceptic political front runner Marine Le Pen taking the crown in a surprise win looms over the market. After last year’s political shocks, markets are unlikely to rule out that eventuality and the euro may suffer as a result.

Disclaimer: This economic update is provided by FC Exchange a Global Reach Group Company, industry leaders in foreign exchange. Authorised affiliates are permitted to reuse content.

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