January 6, 2020
By Tom Westbrook
SINGAPORE (Reuters) – The safe-haven Japanese yen hit a three-month high on Monday, while gold soared as increasing tensions between Iran and the United States sent investors scurrying to less risky assets.
The United States detected a heightened state of alert by Iran’s missile forces, while President Donald Trump warned of a “major retaliation” if Iran hit back.
Iraq’s parliament on Sunday recommended all foreign troops be ordered out of the country and Iran said it would abandon limits on uranium enrichment, after the U.S. killing of a top Iranian commander and an Iraqi militia leader in Baghdad.
“I think markets are going to remain pretty nervous on potential Iranian retaliation and what Trump might do next,” said National Australia Bank’s head of FX strategy, Ray Attrill.
The yen <JPY=>, regarded as a haven in times of market turmoil by virtue of Japan’s status as the world’s biggest creditor, rose 0.3% to 107.82 per dollar early in Asian trade, its strongest since October 2019.
It handed back some of those gains later, as investors waited for an Iranian response.
“It’s a wait-and-see but it’s very tense,” said Sean MacLean, research strategist at Pepperstone, a brokerage in Melbourne.
The Swiss franc <CHF=> rose 0.2% to 0.9707 francs per dollar, while the euro <EUR=> and pound <GBP=> were steady.
Spot gold leapt as much as 1.8%, or $28 per ounce, in early Asian trade to an almost seven-year high of $1,579.55 <XAU=>. Oil rose on fears any conflict in the region could disrupt global supplies. [O/R]
The dollar gained against riskier currencies such as the Aussie <AUD=D3> and the kiwi <NZD=D3>. Against a basket of currencies <.DXY> the greenback steadied at 96.827.
The moves extended a flight to safety that began on Friday, after Iranian Major-General Qassem Soleimani was killed on Friday in a U.S. drone strike on his convoy at Baghdad airport.
The attack carried U.S.-Iranian hostilities into uncharted waters and stoked concern about a major conflagration.
The Australian dollar/yen pair – a gauge of risk sentiment because the Aussie is a trade-exposed, export-oriented currency compared with the yen’s safety status, has been the biggest mover, with the yen rising 1.3% since Friday. <AUDJPY=>
U.S. Secretary of State Mike Pompeo said Washington would target any Iranian decision-makers it chose if there were further attacks on U.S. interests by Iranian forces or their proxies.
The European Union, Britain and Oman, meanwhile, urged the two sides to make diplomatic efforts to defuse the crisis.
“The probability of an interruption in oil supply due to potential retaliatory measures by Iran has been increasing significantly for several days,” said Marc-André Fongern,Head of FX Research at trade finance broker MAF Global Forex.
“A diplomatic resolution is imperative, but the Iranian government’s rhetoric remains uncompromisingly harsh.”
Besides Iran’s reply, investors are also looking to U.S. data this week after a disappointing manufacturing readout on Friday.
Service sector surveys in Europe, China and the U.S. due later on Monday and a U.S. non-manufacturing survey due on Tuesday are all in focus. So too are November trade, construction approvals and retail figures for Australia through the week, ahead of a central bank meeting in a month.
(Reporting by Tom Westbrook; Editing by Kim Coghill)