US dollar plumbs more than two-year lows as more stimulus in view

[NEW YORK] The euro, Aussie and New Zealand dollars all posted more than two-year highs against the struggling greenback on Wednesday as investors bet on more US fiscal support and positioned for year-end in light trading volume.

Investors are betting that an improving economic outlook as Covid-19 vaccines are rolled out and unprecedented fiscal and monetary stimulus will boost global growth and asset prices in 2021.

US economic growth is expected to drag behind peers, however, with the US currency also suffering from rising fiscal and current account deficits as the government increases spending to tackle coronavirus-related business shutdowns.

Data on Wednesday showed that the advance goods trade deficit rose to a record US$84.8 billion in November, from US$80.3 billion in November.

"The start of Covid-19 immunisation campaigns in several countries as well as additional US fiscal support have reduced downside risk to the global economy and bode well for general financial market sentiment. This remains a drag for USD," Elias Haddad, senior currency Strategist at Commonwealth Bank of Australia, said in a report on Wednesday.

The US dollar fell 0.4 per cent against a basket of currencies to 89.65 after earlier dropping to 89.56, the lowest since April 2018. It is down more than 7 per cent this year.

Trading volumes are thin with many investors out between the Christmas and New Year holidays.

The euro reached US$1.2310, before falling back to US$1.2292, up 0.3 per cent on the day.

The Aussie surged to US$0.7686, and was last up 0.9 per cent at US$0.7676. The kiwi reached US$0.7213, and was last US$0.7200, up 0.7 per cent.

It was the highest level for all three currencies against the US dollar since April 2018.

The US dollar also slipped 0.2 per cent to 103.23 yen. It is holding just above a nine-month low of 102.86 yen reached on Dec 17.

Optimism of further stimulus came even after Senate Majority Leader Mitch McConnell on Tuesday put off a vote on increasing Covid-19 relief checks from US$600 to US$2,000.

US President-elect Joe Biden is expected to push for more measures to support the US economy after he is inaugurated next month.

Other data on Wednesday showed that contracts to buy US previously owned homes fell for a third straight month in November as an acute shortage of properties pushed up prices.

Sterling also jumped as lawmakers approved Prime Minister Boris Johnson's post-Brexit trade deal with the European Union.

The pound gained 0.9 per cent to US$1.3618. It is holding just below the US$1.3625 level reached earlier this month, the highest since May 2018.

Bitcoin reached a record high of US$28,917, taking the yearly gain for the world's most popular cryptocurrency past 300 per cent.

The greenback fell 0.4 per cent against the loonie to 1.2765 Canadian dollars.

REUTERS