The Australian and New Zealand dollars were the biggest losers in the currency market today. The Australian dollar is down 5 percent against the Japanese Yen and 3 percent against the US dollar. The New Zealand dollar on the other hand is down 4 percent against the Yen and 2.5 percent against the US dollar.
Both currencies have been hit hard by carry trade liquidation as Mrs. Watanabe cuts her losses. At this point, the loss due to currency fluctuations far outweigh the interest rate gains. In fact, AUD/JPY is one of the only Yen pairs to fall more in this phase of liquidation than it did back in 1998. Overnight, the Australian stock market plummeted as much as 5 percent, which was the largest one day decline in 7 years. From high to low, the 2-day decline in NZD/JPY is the biggest in 22 years. The Canadian dollar on the other hand has been spared even though international securities transactions were much weaker than expected.