Wild ride continues for shares, currency
The Australian dollar was on track to record its worst weekly loss against the US currency in almost two years, while the sharemarket continued its slide into negative territory on Friday before fighting back and closing just below its open.
The benchmark S&P/ASX200 index closed 19.6 points, or 0.4 per cent, down to 4738.8. The broader All Ordinaries index slipped down 20.1 points, or 0.4 per cent, to 4723.8. The S&P/ASX 200 fell 1.1 per cent for the week and is now up just 1.9 per cent for the year.
Asian markets, which like Australia have been victims of a reallocation of capital back to developed economies, behaved in a similar fashion. Investors had heaved a sigh of relief after Chinese authorities injected some liquidity into the financial system after a sharp rise in Sibor, the Shanghai interbank offered rate.
"It has been an extremely stormy period for financial markets in the aftermath of the Fed meeting," said HSBC's Asia head of currency research, Paul Mackel.
"Many in the currency markets were looking for some soothing comments from [US Federal Reserve chief Ben] Bernanke but he didn't give that comfort market participants were hoping for and we saw a nasty move by the Australian dollar and other currencies as well."
The dollar experienced some respite against its US counterpart on Friday, recovering slightly after it reached an almost three-year-low of US91.64¢ early in the day. It was trading at US92.18¢ late Friday.
The dollar has slipped more than 2 per cent for the week against the British pound and the euro, but gained 0.4 per cent against the Japanese yen.
Bonds were also caught up in the global sell-off, driving yields for US 10-year Treasuries up about 14 per cent for the week. The yield on 10-year Australian government bonds rose to 3.7 per cent - an 11.7 per cent gain for the week. Bond yields and prices move in inverse directions.
The volatility in the markets could "remain elevated for some time" and potentially expose weaknesses in the global financial system, ANZ chief economist Warren Hogan said.
Mr Hogan said commodity currencies were in a cyclical down move, with ANZ forecasting the Australian dollar to slip below US90¢ in 2014.
David Cassidy, UBS's head of strategy, said the Australian market saw a more significant correction than some other markets this year. "We've obviously got more yields plays than just about anywhere else, so we're more vulnerable to the type of correction that has unfolded."
He said the slide in the dollar also encouraged foreign investors to exit Australian equities, while emerging markets in general have been nervous about the slowdown in China.
The dollar could also continue to unwind if investors became more risk averse and continued their flight from high-yielding currencies, FXCM strategist John Kicklighter said. "[Investors] chase down the rather anaemic rates of returns and suffer little risk for it because the Federal Reserve is always going to be there to back them up on their positions.
"But they are starting to realise that is not the case and that exceptional amount of risk they have taken to chase down yield that are so historically thin is really starting to come back down."
Frequently Asked Questions about this Article…
The article says investor jitters about a possible retreat in the US Federal Reserve's stimulus program drove a broad sell-off. Markets reacted to the Fed meeting and a lack of soothing comments from Fed chief Ben Bernanke, which prompted risk-off moves across equities, currencies and bonds.
The Australian dollar was on track for its worst weekly loss against the US dollar in almost two years. It fell sharply after the Fed-driven market moves and reached an almost three-year low of US91.64¢ early in the day before recovering to about US92.18¢. ANZ said commodity currencies are in a cyclical down move and even forecast the AUD could slip below US90¢ in 2014.
The S&P/ASX 200 closed down 19.6 points (0.4%) to 4,738.8, while the All Ordinaries slipped 20.1 points (0.4%) to 4,723.8. The ASX200 fell 1.1% for the week and was up about 1.9% for the year, showing the market experienced a notable short-term correction.
Bonds were caught up in the global sell-off, pushing yields higher. US 10-year Treasury yields rose roughly 14% for the week, and the Australian 10-year government bond yield climbed to 3.7% (an 11.7% weekly gain). The article notes bond yields move inversely to bond prices.
Analysts warned volatility could remain elevated. ANZ chief economist Warren Hogan said heightened volatility could expose weaknesses in the global financial system. UBS's David Cassidy pointed out Australia was more vulnerable to a yields-driven correction, and FXCM's John Kicklighter warned that a flight from high‑yielding currencies could continue as investors reassess risk.
Asian markets were also hit as capital reallocated back to developed economies. Chinese authorities injected liquidity into the financial system after a sharp rise in the Shanghai interbank offered rate (Sibor), which briefly eased investor concerns but didn’t fully calm global markets.
The US dollar slipped more than 2% for the week against the British pound and the euro, but it gained about 0.4% against the Japanese yen. It reached an almost three-year low vs its own index early in the period before a modest late recovery.
Based on the article, everyday investors should be aware that: market volatility may stay elevated; commodity-linked currencies like the AUD can be vulnerable in yield-driven corrections; rising bond yields can pressure equities; and shifts in global risk appetite (including foreign investors exiting Australian equities) can amplify moves. The coverage highlights risk and positioning trends rather than giving specific investment advice.
Call 1300 880 160
Start a chat
Schedule a call
