Investors are seeking the safety of the Japanese yen (JPY) after the currency rallied against the EUR and the USD on Thursday.
Investors are seeking the safety of the Japanese yen (JPY) after the currency rallied against the EUR and the USD on Thursday. According to reports, this was an expected development for investors, even before tech giant Apple warned Wall Street of the reduced demand for its iPhones in China.
Lower demand for Apple’s iPhones
Described as a “shock revenue warning,” Apple’s latest feedback made an already difficult situation much worse as it raised concerns about China’s economic health. Experts warned that a Chinese slowdown could result in a global crisis, but they never expected it to arrive this fast.
Reports from 2018 hinted at a global economic slowdown or full-blown crisis in 2020. With circumstances evidently going downhill, investors are now preparing to go to safe haven sectors. Some already did so earlier in the week, as safe haven assets are top picks on the first trading day of the year.
A sharp rally
The USD was 0.95% lower than the JPY on Thursday, and the EUR was 0.86% lower than Japan’s currency. The yen went up over 5% in the past five weeks due to the growing anxiety of the markets. The general outlook for 2019 is gloomy, analysts noted.
In an interview with CNBC, Tempus Consulting Senior Currency Trader Juan Perez said: “Clearly, the Japanese yen is a beloved safe-haven asset when the globe seems to be in chaos.” He also noted that “things are consistent in Japan” despite overall slow growth. Japan’s political situation is more stable than that of China and the United States. The Asian nation also has an account surplus, while other nations are suffering at the mercy of the trade spat between the United States and China.
The yen has always been a safe haven in times of stress. This is due to traders’ belief that Japanese investors always pull out their money overseas and get it back into Japan to ensure that said funds or assets are safe.
“The time between New York close and Asian open is notoriously thin as it is, and couple that with a Japan holiday and Apple news that smacked the equity, and you had a nice recipe for a sharp JPY rally,” Jeffries Global Head of FX Brad Bechtel said.
A bad omen for Apple
Apple’s announcement greatly concerned investors, as evidenced by the headlines in the past 24 hours. The tech giant’s stocks also fell globally because of the reduced interest in its products. The market is taking this as a bad omen, according to experts. Investors who did not move their assets to safe haven sectors at the beginning of the week have now done so. Those in forex trading are also fleeing from volatile currencies
Events that took place after Christmas Eve 2018 have shown investors the general direction of the market, analysts noted, and one negative headline after another will make things more difficult for the global economy.
The USD’s recent fall is another cause for concern, according to investors, as it reflects the direction of the country’s economy. It is also indicative of what investors currently expect of the market. The dollar’s fall against the euro and the yen came about when the Institute for Supply Management released the United States’ manufacturing activity index data. It is currently at its lowest point since the latter part of 2016.
What happens to the AUD?
The AUD is not faring well, as its fortunes are anchored to China. The Asian nation is Australia’s biggest trade partner in the region and receives a huge portion of its commodities from Down Under. The AUD is currently at a near-decade low, according to market analysts, and this is not likely to change in the coming weeks.
While bad news seems to dominate the headlines, the AUD should regain its losses in the second quarter of 2019. Another development that Australian analysts are mentioning is the government’s trade negotiations with the Eurozone to expand Australia’s reach. Better trade relations with other nations will help buoy the Australian dollar whenever the Chinese economy suffers a hit or contracts.
The Brexit saga
In the United Kingdom, investors are worried about the GBP, as it is now lower against the USD, falling by 0.13%. Apart from what is happening in China and the United States, the Brexit saga is also a pressure point for the global market. As investors anticipate the approval or rejection of UK Prime Minister Theresa May’s withdrawal agreement proposal, the pound will keep falling. Several British officials noted that a hard Brexit at this point will only hurt the currency.