Oil Drop and China Boost Safe Haven Flows

Major currency markets flattened out on Tuesday after a rebound for shares and other riskier assets from the latest round of shocks due to falling oil prices and worries over China.

Of the big four developed world currencies, sterling was the standout, falling almost 1 percent after poor British manufacturing numbers while the dollar, euro and yen were broadly unchanged.

Attention remained fixed on the gyrations of China’s yuan and a fall in oil prices to $30 a barrel, a morning recovery for crude helping wipe away initial falls for the Norwegian crown and Canadian, Australian and New Zealand dollars.

Yuan offshore rates CNH=D3 steadied, but their convergence with the officially controlled onshore market CNY= was driven by official moves to push implied overnight interest rates in Hong Kong as high as 94 percent.

Fund investors, bankers and corporate sellers have rounded on the yuan since late December and there is little sign of negative views on the currency abating.

Chris Morrison, head of strategy and a portfolio manager with London-based hedge fund Omni, has been betting against the yuan since the start of 2014.

“The interest in this trade has just risen exponentially. I have received 50 emails per day on the RMB (yuan) in the last week,” he said.

via Reuters

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, he established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza