Growth currencies weaker after Chinese stocks fall sharply

Thursday, 22 October 2015 00:00 - - {{hitsCtrl.values.hits}}

Reuters: Commodity-linked currencies such as the Australian and New Zealand dollars fell on Wednesday as Chinese stocks slid, while trade data from Japan raised the specter of a recession enveloping the world’s third-largest economy.

The yen eased against the dollar and the euro after more evidence of the problems plaguing Asian trade flows, with Japanese exports growing at the slowest pace since mid-2014 mainly due to weakness in China. That also kept alive chances of more quantitative easing from the Bank of Japan, perhaps as early as the end of the month.

The Australian dollar, which is used as a more liquid proxy for Chinese investments because of Australia’s huge trade links with China, fell 0.5% to $0.7225, while the New Zealand dollar shed 0.3% to trade at $0.6725.

The drop came as the Shanghai Composite closed more than 3% lower, slumping towards session-end in a resumption of recent volatile patterns. Other emerging market stocks were also shaky after recent data hinted at a gloomy growth outlook.

“The Japanese data was a bit depressing, while the slide in Chinese stocks is creating some anxiety for riskier currencies,” said Niels Christensen, FX strategist at Nordea.

The euro was slightly firmer at $1.1352, adding to Tuesday’s modest gains. Against the yen, the euro was up about 0.3% at 136.17.

Traders said the euro is prone to some volatility ahead of the European Central Bank (ECB) policy meeting on Thursday. While the ECB is not likely to ease this month, investors remain wary of it hinting at more stimulus later this year.

ECB data on Tuesday showed euro zone banks had loosened their lending standards more than expected over the past few months despite global market volatility. That somewhat moderated the need for the ECB to ramp up its one trillion euro asset purchase program.

“So market attention is mainly going to focus on whether ECB President Mario Draghi’s comments will allow any conclusions being drawn on the possible timing of an extension: as early as December or not until 2016?” Commerzbank currency strategist Esther Reichelt said.

Meanwhile, the Canadian dollar fell 0.2%, with focus on the Bank of Canada’s policy decision due on Wednesday. Most analysts polled by Reuters expect rates to remain unchanged.