Panic reigned in currency markets yesterday as orders from traders and algorithmic machines snowballed to spur some of the biggest moves since the global financial crisis.
As markets reopened after a weekend filled with crisis headlines, the yen soared to approach the key 100 level against the greenback. Risk and commodity currencies from Australia to Norway and Mexico all plunged within the first few hours of trading.
"Markets are screaming that there is a pending recession," said adviser Stephen Miller at GSFM, a unit of Canada's CI Financial Group.
"People can't seem to get enough of the likes of yen and gold, and dumping the Aussie and commodity currencies that are vulnerable to global growth risks."
The Singapore dollar was relatively unscathed, trading down 0.5 per cent to the US dollar at 1.3851 as of 4.38pm Singapore time.
Investors are taking cover in the safest assets as the collapse in crude prices adds to the risk the global economy is facing from the spreading coronavirus outbreak.
Crude prices dived more than 30 per cent at one point, with the breakdown of the relationship between Saudi Arabia and Russia.
That sent oil-exporting currencies such as the Norwegian krone and the Canadian dollar plunging from the start of trading yesterday.
The widespread selling of more than a dozen currencies erased any benefits that the United States Federal Reserve's emergency rate cut last week had engineered.
Algorithmic machines sold the Australian and New Zealand dollar across multiple bank platforms in a desperate hunt for liquidity, traders said. The Australian dollar plunged by almost 5 per cent, the biggest one-day decline since 2008, to as low as 0.6313 against the greenback. The kiwi fell by more than 5 per cent to its weakest since May 2009.
The yen soared more than 3 per cent to 101.57, approaching the 100 level that traders speculate could prompt the Bank of Japan to intervene.
Traders were caught out. A Sydney-based investor bought the Australian dollar at 0.6450 per dollar before stop-loss orders were triggered at 0.6350. The result: a US$50,000 loss within seconds.
"This looks to be a repeat of the Jan 3 flash crash," said QIC senior portfolio manager Stuart Simmons, referring to the sell-off in the yen early last year. "When they start triggering stop losses, the currencies end up cascading on themselves - there are no circuit breakers. Price action turns dysfunctional."
The pain was even greater for emerging-market currencies.
Mexico's peso slid more than 8 per cent against the US dollar to the weakest in more than three years, while the South African rand slumped 7.8 per cent.
Yesterday's yen surge also wrong-footed Japanese retail investors. The currency surged to all-time highs against the rand and Mexican peso, two favoured currencies among Japanese retail punters.
This comes after margin accounts last week boosted their net long positions on these currencies to the highest level since at least December, according to data from the Tokyo Financial Exchange.
But there was little sense of turmoil in China's currency market, with the yuan holding near its strongest level since January. The yuan was 0.17 per cent weaker at 6.9460 per dollar as of 5.53 pm after strengthening as much as 0.36 per cent.
The Chinese currency has climbed 1.2 per cent in the past two weeks, bolstered by an equity market recovery and bond rally.
Yesterday's plunge in crude prices may also benefit China, given its status as a net oil importer.
"It is quite rare to see the yuan strengthening against a risk-off backdrop, which makes investors ask whether it is a safe haven for now," said Mr Zhou Hao, an economist at Commerzbank in Singapore.
In comparison, the South Korean won, Malaysian ringgit and Indonesian rupiah all fell at least 1 per cent yesterday.