FX volatility up as yen gains 3%; commodity currencies slump

London

THE dollar fell 3 per cent against the Japanese yen and commodity-linked currencies tanked on Monday, as a 30 per cent crash in oil prices and tumbling stock markets panicked investors and sent currency prices swinging wildly.

A gauge of volatility in the euro/dollar market - the world's most-traded currency pair - shot to its highest since April 2017 as the euro surged more than 1 per cent to its strongest since January 2019.

Dollar-yen one-month implied volatility surged to an 11-year high at more than 18 per cent as the dollar slid to its weakest since 2016.

Investors are dumping dollars because of the collapse in US Treasury yields.

The benchmark yield is at 0.45 per cent, after trading above one per cent last week, as traders shed risky assets and head for the safety of government bond markets.

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Oil prices fell 30 per cent after Saudi Arabia pledged to slash prices and boost production following the collapse of an Opec supply agreement.

That unnerved investors already rattled by more than a week of wild moves in markets, as they struggled to assess the economic damage caused by Covid-19.

In hectic trade, the dollar fell as low as 101.55, its lowest in more than three years. It was last down 3 per cent at 102.28 yen.

The euro rallied 1.2 per cent to US$1.1419 after earlier touching US$1.1495.

The dollar index dropped to its weakest since September 2018 before recovering somewhat to trade at 95.132, down 0.3 per cent.

The Swiss franc added more than 1 per cent against the dollar but was flat versus the euro.

The biggest moves were in currencies linked to oil prices.

Norway's kroner tumbled to record lows.

The euro added nearly 5 per cent to 10.997 and the dollar gained more than 4 per cent to 9.688 kroner before easing back.

The Canadian dollar shed 1.5 per cent to C$1.3622.

The Russian rouble fell as much as 6 per cent and the Mexican peso 7 per cent against the dollar.

The Australian and New Zealand dollars fell nearly 2 per cent before bouncing back.

"For growth-sensitive and for oil-sensitive currencies, it's far too early to pick a bottom," said Kit Juckes, a strategist at Societe Generale, predicting that the Norwegian kroner and Canadian dollar would get weaker.

"US$/yen will be a source of concern to the Japanese authorities, who have as little interest in a stronger currency as anyone else, but US$/yen 100 will break eventually.

"Japan's net international investment position is just too healthy." The yen is headed for its largest three-day gain since the 2008 financial crisis. It is up around 9 per cent in a dozen trading days. REUTERS