Swiss franc slumps in mini 'flash-crash'; dollar up on trade angst

London

THE dollar rose on Monday as concerns grew that US-China talks would not heal a rift over trade between the world's largest economies and the Swiss franc slid in a mini "flash-crash".

A brief one per cent drop in the franc gave currency traders a shock during Monday's Asia session.

A Japanese public holiday meant that markets were quiet and thin liquidity helped cause a mini recurrence of the "flash crash" that hit foreign exchange markets early last month. Within a matter of minutes, the Swissie slid from 1.0004 per dollar around 2200 GMT on Sunday to as low as 1.0095, the lowest since November, before reversing the move almost as suddenly to trade 0.2 per cent stronger on the day. The move was similar to the whiplash that saw the yen jump 7 per cent against the Australian dollar early on Jan 3, when Japanese markets were nearing the end of a week-long New Year holiday break.

"Since there was no material news during the early Asian session, the move seems to be mainly due to some large orders being executed in an environment of very thin liquidity," said Marios Hadjikyriacos, an analyst at broking firm XM.

Other analysts downplayed the move, though. "There's nothing to comment on... a one per cent move in thin liquidity is not a crash. If anyone knows about seismic FX market moves... it's the Swiss National Bank," said Viraj Patel, a currency strategist at Arkera, a financial technology firm.

The franc soared as much as 30 per cent in 2015 after the SNB shocked markets by scrapping the franc's peg to the euro.

At 12.30 GMT the Swiss franc was down 0.2 per cent at 1.002 francs per dollar. That was largely due to broad strength in the dollar.

The greenback is being lifted by its safe-haven appeal as investors, worried about a sharp global economic slowdown, pile into the world's most liquid currency. The US currency is headed for an eighth consecutive day of gains.

High-level talks in Beijing this week are a leading focus for investors, many of whom see little prospect for a trade deal and instead expect an extension of the March 1 deadline for deciding whether to increase tariffs.

Emerging market and China-sensitive currencies such as the Australian dollar are most likely to be affected.

The dollar's recent strength has emerged despite the Federal Reserve striking a cautious tone at its policy meeting in January.

"The US currency is currently in demand as a safe haven. This is reflected in the fact that the Swiss franc and the Japanese yen - also typical safe haven currencies - have also been able to appreciate since the start of the month," said Thu Lan Nguyen, an FX strategist at Commerzbank in Germany.

On Monday morning, when China markets reopened after a one-week holiday break, the dollar was 0.5 per cent higher versus the yuan at 6.7753.

The euro was a touch lower versus the greenback at US$1.1315. REUTERS