Running with the current theme, less than convincing economic activity from the US heightened investor fear overnight in yet another sign the US economy is struggling to get back on the straight and narrow. US existing home sales slumped 27.2 percent in July to an annualised pace of 3.83 Million. Housing’s where it all started and this latest string of bad economic data is reigniting fears of a double dip recession. Not helping the cause was further turmoil across the Atlantic with rating agency S&P downgrading Ireland’s debt rating by one notch to double-A-minus.
US equities slumped and risk currencies followed suite stripping over 1 US cent from the Aussie dollar to overnight lows of 87.95 US cents. At the time of writing the Aussie has regained some composure trading around 88.3 US cents.
With the dire US economic outlook in focus, market participants had little other options then a flock to the safety plays. Gold, US treasuries and the greenback also become the beneficiaries of the last burst of pessimism. However it was a rise of the Japanese Yen which turned heads which rose to fresh 15 year highs against the greenback of 83.58 Yen. Year-to-date the Yen has appreciated near 10 percent against the US dollar, which is testament to the underlying risk-off environment that has plagued investors this year.
In times of adversity the Japanese Yen is seen as the ultimate currency safety-play. Recent times have seen Japanese officials warn against excessive strength of the Japanese Yen as an expensive Yen against major counterparts makes exports become less price-competitive against competing economies, thus hampering an export fuelled recovery. This of course continues to ignite speculation the Bank of Japan are poised to intervene in the currency markets, but for now it appears not even the premise of intervention from the Bank of Japan is keeping the Yen under wraps at the moment.