INTERNATIONAL. The travel retail industry is bracing itself for a volatile 2019 following dramatic swings in some Asia Pacific currencies crucial to the sector.
The Japanese yen surged 3.67% against the US dollar in just eight minutes at about 10.40pm GMT on Wednesday. It also moved by a similar amount against the Australian dollar and some emerging market currencies. Traders dubbed the swing a “flash crash”.
The Australian dollar, seen as a proxy for the Chinese economy, slumped to its lowest level in a decade at about the same time, falling 3.5% against the US dollar.
Low liquidity in foreign-exchange markets was initially blamed for the swings, with Tokyo closed for a public holiday.
The moves came an hour after Apple announced it was cutting its sales outlook by almost 10%, partly blaming the economic slowdown in China, which accounts for about 20% of Apple’s revenue.
A rally in the yen following the announcement appeared to make sense, with the Japanese currency widely seen as a safe haven.
However, market participants pointed to algorithmic trading, which is conducted by computers, as a more likely cause of the volatility.
Relative currency strength is a key driver of consumer confidence and spending power in the travel retail industry.
The pound closed the same day down an average of 1.1% against the world’s other major currencies despite an ostensibly healthy purchasing managers’ index (PMI) for the manufacturing sector.
Analysts said that the UK PMI reading of 54.2, up from 53.6 in November, may have been led by British firms building up stocks in the event of a no-deal Brexit.
Wider declines in manufacturing in China, Europe and America may have partly accounted for sterling’s slide, with investors’ worries over Brexit compounding the situation.
