The yen was strong on safe haven buying during Thursday’s Asian trading, as several factors contributed towards risk aversion and away from the US dollar. Firstly, US stock indices lost significant ground during New York trading and Asian shares were also under pressure as US technology shares had retreated. Risk aversion tends to benefit the Japanese yen. Dollar / yen was pushed to a more than one-month low of 118.55.
Secondly, internal strife in Yemen threatened to escalate into a wider conflict for the Middle East region as Saudi Arabia and other Gulf States launched air strikes against Houthi rebels that were besieging the port city of Aden, where the US-backed President of Yemen took refuge. Fears of geopolitical instability in the oil-producing Middle East sparked a rally in oil prices, with US crude oil topping the $50 a barrel mark to trade around $51.10. The rally in oil prices in turn benefitted oil-producing countries’ currencies such the Canadian dollar.
The third factor was the weak economic data out of the United States, as worse-than-expected durable goods orders for February contributed to painting a picture of a softer US economy during the first quarter of 2015. Durable goods orders for February actually fell 1.4% instead of rising 0.4% as expected by economists, while excluding volatile defense and air transportation goods, they dropped by 1.4% instead of rising by 0.3%. Durable goods orders are an important indicator of business spending and it is a sign that companies are not so willing to invest. Part of the weakness could be attributed to some unseasonably cold weather, but various US economic indicators have been coming in lower-than-expectations, which in turn has been hurting the US dollar. In the Eurozone some data has come out better-than-expected, which has helped the euro rebound to around the 1.10 level versus the US dollar.
Looking ahead, monetary statistics for February out of the European Central Bank will be closely watched for any signs of a pickup in bank lending in the Eurozone economy. These will be followed by UK Retail Sales for February, which are expected to show a healthy year-on-year increase of around 4%. During the US session, weekly initial jobless claims and Markit flash services PMI will be the two main economic numbers out of the United States. Initial jobless claims are expected to hold under the key 300 thousand level at 290 thousand.