By Tom Westbrook
SINGAPORE (Reuters) – Commodity currencies hit multi-week lows on Wednesday, tracking weak Chinese demand, while the yen rose as short sellers pulled out ahead of a central bank meeting.
PMI figures will be watched particularly in Europe later in the session to see if they support bets on two European rate cuts by the end of January.
The euro was steady at $1.0848 in Asian trade, and the pound, which could rise if UK PMIs surprise higher and dampen bets on interest rate cuts, bought $1.2901.
Markets are pricing in a 44% chance of a 10 basis point rate hike in Japan next week, and speculators, also spooked by a few suspected rounds of currency intervention by Japan, are closing out profits from yen-funded “carry trades.”
USD/JPY fell about 1% to 155.55 overnight and was trading near 155.78 early in the Asian session.
Moves in other currency pairs were larger, with the euro down 1.3% against the yen overnight and hitting a five-week low of 168.79 yen in Asia. The high-yielding Mexican peso fell 2% against the yen overnight and the Australian dollar fell about 6% against the yen in two weeks.
“The yen was very cheap. But with the intervention, a large number of shorts are taking money off the table ahead of the Bank of Japan meeting next week,” said Jason Wong, chief strategist at the Reserve Bank of New Zealand in Wellington.
Declines in oil, iron ore and commodity prices, as well as a wave of risk aversion in stock markets, have caused currencies such as the Australian, New Zealand and Canadian dollars to fall against the US dollar.
The New Zealand dollar touched a five-week low of just under $0.6612 in early trade on Wednesday. The New Zealand dollar hovered near a two-and-a-half-month low of $0.5951 on Tuesday.
China’s weaker-than-expected growth figures last week and a surprise interest rate cut on Monday have drawn attention to the dim outlook for demand for raw materials, sending commodities such as iron ore and copper to three-month lows on Wednesday.
The Canadian dollar hit a six-week low of C$1.3787 against the greenback ahead of the central bank’s meeting later on Wednesday where markets have priced in an 84% chance of a 25 basis point interest rate cut.
The US dollar was trading at $104.5, close to a two-week high. The greenback was steady at 7.2909 in overseas trading.
Looking ahead, traders are awaiting U.S. GDP and core personal consumption expenditure data due later in the week to test expectations for two more U.S. rate cuts over the rest of the year. Australia’s Q2 inflation data next week will be crucial in pricing in the risk of another rate hike.