Risk averse investors drove the yen to its highest level against the euro since mid-November on Tuesday, while the Australian dollar sank to a three-week low. Appetite for risk has been curtailed by market nerves ahead of a meeting between US President Donald Trump and Chinese President Xi Jinping and following Monday's suspected suicide bombing in St. Petersburg, Russia.
The yen rose by as much as 0.7 percent to 117.48 against the euro in London, its highest level since November 22. Against the dollar, it was up 0.4 percent to 110.465 yen, after hitting 110.335 in its highest in a week in Asia. "It is the old explanation. Risk-off in the ... equity markets is pushing dollar/yen lower more than anything," Niels Christensen, FX strategist with Nordea in Copenhagen, said.
Japan's main Nikkei stock index, which tends to move inversely to the yen, closed 0.9 percent lower at a 10-week low. "Investors are a little bit cautious ahead of the earnings season that kicks off late next week in the US" Christensen added. Monday's largely positive US construction spending and manufacturing data affirmed a steady improvement in the economy, but did little to uphold Treasury yields and the dollar, which was last up 0.2 percent against a basket of rivals.
"There was a tragedy in Russia and there may be some hedging-type buying ahead of the French presidential debate and also French elections in three weeks," said Yujiro Goto, currency analyst with Nomura in London, on the yen's surge. The euro fell 0.3 percent to a three-week low of $1.0636 as traders reached their desks in New York, its advance tempered by a sharp decline in German bond yields following the bombing in St. Petersburg.
The Reserve Bank of Australia's decision to keep its cash rate at a record low of 1.5 percent on Tuesday came as little surprise. But the Australian dollar fell after the central bank hinted it was not too confident about domestic labour and inflation conditions.
The Aussie lost nearly 0.8 percent to reach a three-week low of $0.7545, having declined steadily over the past two weeks from a four-month high of $0.7750. The currency was also over 1 percent lower against the yen. The New Zealand dollar also sank to a three-week low, moving in tandem with the Aussie and down 0.6 percent on the day at $0.6972.