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Apple-induced 'flash crash' jolts currency markets

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CURRENCY markets were greeted with a sudden spike in volatility early in Thursday's Asian session as investors grew more risk averse amid the slowdown in global growth.

Singapore

CURRENCY markets were greeted with a sudden spike in volatility early in Thursday's Asian session as investors grew more risk averse amid the slowdown in global growth.

This action was catalysed by tech stalwart Apple announcing that it had cut its quarterly sales forecast, with chief executive Tim Cook citing slowing iPhone sales in China.

Speaking to The Business Times (BT), OCBC's currency economist Emmanuel Ng said: "Within the community, the spike is believed to have been triggered by Apple's headlines and likely to have been the catalyst for US Treasury futures jumping higher, S&P futures gapping lower, and the abrupt "flash crash" in the major currencies in favour of the US dollar and the Japanese yen."

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Mr Ng added that the yen's surge was exacerbated by thin liquidity on the account that Japanese markets remained closed for the new year while the speed of the surge could also have been fuelled by algorithmic trading.

The yen's rally was triggered shortly before 9.30am Sydney time when a high number of orders were received to sell the Australian dollar and Turkish lira against the Japanese yen. The yen gained about 8 per cent on the Australian dollar, its strongest showing since 2009 while adding 10 per cent on the Turkish lira. This also resulted in the yen being markedly higher against the US dollar.

Commenting on the depreciation of the US dollar relative to the yen, UOB's senior FX strategist Peter Chia said: "The sharp move in the USD/JPY that we saw on Thursday morning is probably triggered by stop-loss orders below last May's lows of around 108.11."

Shortly after 7.30pm on Thursday, the USD/JPY rate was 107.66.

In all, most Asian currencies weakened against the greenback and yen, considered safe havens in times of volatility. But Standard Chartered's Divya Devesh said that the impact on emerging market Asian currencies has been relatively limited thus far.

Gold prices also continued their upward trajectory, hitting a more than six-month high and building on its rally as risk-off attitudes grow. It was trading at US$1,295.26 per ounce shortly after 7.30pm.

Sharing Mr Ng's sentiment, DBS FX strategist Philip Wee noted: "Since the start of December, spurred by volatility in the equity markets, there has been a clear return to safe haven assets such as the Japanese yen, US treasuries and gold."

While not commonplace, "flash crashes" like Thursday's have happened in previous years, especially in early Asian trading when liquidity is thin.

Maybank's head of FX research Saktiandi Supaat, OCBC's Mr Ng and DBS's Mr Wee noted that the pound lost 6 per cent in relation to the US dollar in October 2016 before rebounding amid concerns surrounding Brexit.

Mr Supaat and Mr Wee also cited the yen's sharp appreciation against the New Zealand dollar in August 2015 as another example of a recent "flash crash".

In the near term, the FX analysts that BT spoke to said that markets may continue to face decelerating growth from economies, especially China. This would result in cyclical currencies like the Australian dollar and Asian currencies depreciating against the US dollar in the near term.

Mr Supaat added that investors might also resort to some profit-taking from short-term currency plays.

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