- Huge risk-offloading started around 9am (Sydney): AUD, NZD, CAD. Safe haven buying: JPY, CHF, EUR
- Talks of margin calls in Tokyo that triggered the move
- Rumors of China’s required-reserve-ratio (RRR) cut to stabilize market led to a rout during late New York session
Asia market started the day with huge selling of risk assets across the board, in commodity currencies, emerging currencies, and regional stocks. This was talked to be triggered by margin calls in Tokyo despite a public holidays in Japan. Meanwhile, safe haven assets like JPY, CHF, and even the EUR, posted gains.
After the initial round of selling, volatility seems to subside to some extent and price action retrace levels before the sell-off, though not fully. The AUD/USD is still under 0.70 and NZD/USD under 0.6550. The divergence between risk and safe haven assets shows most in crosses like EUR/AUD and AUD/JPY.
This was a continuation of market pessimism late in New York on Friday due to rumors of a cut in China’s required-reserve-ratio. Previously used to moderate market liquidity, the ratio is now a tool to enforce financial stability – according to announcement of a Macro Prudential Assessment on December 29.
All of this could change yet again upon China’s action when the market opens today. Watch out for USD/CNY fix, any new financial policy, any statements from governmental bodies or top officials.
— Written by Nathalie Huynh, Currency Strategist for DailyFX.com
Contact and follow Nathalie on Twitter: @nathuynh