Hong Kong: Asian equities dipped and the dollar rose to a six-week high against the euro on Monday with further gains seen as renewed concerns of a possible euro zone debt restructuring prompted market players to reduce risk.
Having gained by more than 4% in less than two weeks, the dollar extended its biggest winning streak against a basket of other currencies this year, helped by violent swings in commodities and troubles in the euro zone.
The euro fell as low as $1.4063 , its lowest in six weeks, having dropped 5.9% from a 17-month peak of $1.4940 hit less than two weeks ago.
Cooling demand for risky trades was also evident in commodity markets and Asian currencies, which weakened while safe-haven assets like U.S. Treasuries and Japanese bonds advanced.
“The US dollar has turned strong. Investors who have gone long riskier assets, such as commodities, equities and high-yield currencies, now have to reposition and take profit,” said Robert Hsieh, a vice president of Shinkong Investment Trust in Taipei.
The euro’s weakness spilled over into equities with most Asian markets opening in the red after suffering two consecutive weeks of losses.
Japan’s Nikkei was down nearly a% with banks among the main losers and Australia’s benchmark index slumping 1.1%, helped by resource shares.
Shares in Whitehaven Coal plunged as much as 14.5% and were trading down 12.2% at 8:56am, after the firm called off a sale after a five-month auction failed to find a buyer at the right price.
MSCI’s index of Asia Pacific shares outside Japan fell 1.1% after falling for two consecutive weeks.
COMMODITIES, ASIAN FX WEAKENS
While some large bids in the euro are strewn around the $1.4050 to $1.4000 region, just below that, from $1.3900 to $1.4000, is also an area where stop-loss orders are said to be lurking, according to traders.
Even as euro zone officials scrambled to avert a fresh precipitation of the debt crisis, an unexpected complication for financial markets this week will be the arrest on sexual assault charges of International Monetary Fund chief Dominique Strauss-Kahn.
A Greek official told Reuters that Strauss-Kahn’s arrest “might definitely cause some delays in the short term,” but would not change the IMF’s policy on Greece.
A meeting of Eurogroup finance ministers, followed by an Ecofin meeting of EU finance ministers on Monday, could provide further direction for the euro.
Weighing on the euro has also been weakness in commodities with oil and gold softening after recent sharp volatility.
“The euro had been bought only because rising commodity prices were fueling expectations of more rate hikes in the euro zone. With commodity prices clearly running out of steam, there’s no reason to buy the euro,” said Daisuke Karakama, market economist at Mizuho Corporate Bank and a long-time euro bear.
Most Asian currencies also weakened with the Malaysian ringgit among the worst performers after central bank chief Zeti Akhtar Aziz said the country faced rising inflation risks.
China last week raised reserve requirements for banks while Indian state-run oil firms raised domestic petrol prices, indicating rising price pressures in the region.
In bond markets, US government bonds extended Friday’s gains as investors’ preference for safety pushed 10-year yields down to 3.16% from 3.23% on Thursday.
Ten-year Japanese bond yields dropped below 1.110% to the lowest since late November.
The dollar’s strength chewed into oil’s gains last week with US crude futures down nearly 1% on Monday below $99 a barrel.