Standard Chartered Closes Bet to Sell Euro on `Extreme' Markets

By Ron Harui

Sept. 16 (Bloomberg) -- Standard Chartered Plc, the U.K. bank that gets most of its profit from Asia, closed its recommendation to sell the euro against Australia's dollar, given the ``current extreme conditions'' in the global markets.

The European currency rose to a five-year high versus Australia's as Lehman Brothers Holdings Inc.'s filing of the largest bankruptcy in history boosted speculation that credit- market losses will increase, prompting investors to sell higher- yielding assets. Standard Chartered closed its bet that the euro would fall versus the Australian dollar with a loss of 2.76 percent, according to the bank.

``Recent trading conditions have been extreme, suggesting risk should be minimized,'' wrote Callum Henderson, Singapore- based head of foreign-exchange strategy at Standard Chartered, in a client note today. ``Our short euro-Aussie trade recommendation was stopped out, forcing us to close it,'' he said, referring to Australia's currency by its nickname.

The euro rose 2.2 percent to 1.8040 against Australia's dollar as of 2:31 p.m. in Tokyo from 1.7658 late in New York yesterday. It touched 1.8070, the strongest since June 2003.

Standard Chartered had advised its clients to sell the euro on Sept. 12 at 1.7436 versus the Australian dollar, and place an automatic order to buy back the currency should it trade at 1.7700 on a daily closing basis. A short position is a bet on a decline in an asset's price.

``We had put on this recommendation of selling the euro- Aussie on the view that markets would look for rate spreads to narrow in favor of the Australian dollar as the euro zone continued into a recession,'' Henderson wrote.

VIX Volatility Index

Europe's single currency gained for a second day, as the VIX volatility index, a Chicago Board Options Exchange gauge reflecting expectations for stock market price changes and a barometer of risk aversion, surged to as high as 31.87 percent yesterday, the highest since March 18.

Australia's benchmark interest rate of 7 percent compares with 4.25 percent in the 15-nation region sharing the euro, making the nation a popular destination for international investors seeking higher returns.

The euro also climbed versus the Aussie as the yield advantage of two-year Australian government bonds over similar- maturity European debt narrowed to 1.63 percentage points today from 1.99 percentage points yesterday.

To contact the reporter on this story: Ron Harui in Tokyo at rharui@bloomberg.net