The US Dollar and high-yielding currencies such as the New Zealand dollar fell against the Yen on Tuesday as investors grew wary of risky trades amid a sell-off in global equities and a surge in oil prices.
The Dollar sold off after a report showed a record net capital outflow in August. Traders said the net capital outflow was a one-off phenomenon that reflected the financial market's meltdown two months ago. Data on Tuesday showed the United States posted a record net $163 billion capital outflow in August, as foreign investors fled from dollar-denominated assets amid a meltdown in the U.S. sub-prime mortgage market that triggered a global credit crunch. Analysts, however, said the report did not signify a long-term trend and capital flows have recovered since the turbulence in August.
The Yen gained broadly, with investors selling high-yielding assets funded by the currency's cheap rates in carry trades.
On Tuesday, oil jumped to a record price above $88 per barrel amid growing tensions in the Middle East, while US stocks weakened, hurt by disappointing earnings from banks.
Analysts said: "Overall, the Dollar is following the broader market. The Euro is weak, for instance, because EurJpy has come off due to the carry unwinding and that has affected EurUsd".
In yesterday trading, the EurUsd traded 0.19% lower at 1.4176. EurJpy was down -0.49% to 165.92 after having hit 164.86 intraday low. UsdJpy went also lower by 0.32% to 117.05 with an intraday 116.45 low. Big mover was GbpJpy which lowered by 0.82% to 237.76 having touched 236.65 low yesterday. The high-yielding Australian dollar slid 1.3% to 104.23 against Yen, while the New Zealand dollar sank 2% to 87.76. Both falls were a reflection of the current risk-averse environment.
Meanwhile, traders also took note of the drop in U.S. home-builder sentiment in October, which fell to a record low as borrowers faced difficulty in getting mortgages from stricter lenders. Housing reports have collected more attention than usual after the sector's downturn precipitated a global credit crunch. Today, more Housing reports are due with the release of US housing starts and building permits data for September, and both are expected to show further weakness. Markets will also focus on key inflation (CPI) numbers for last month.