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Dollar falls, riskier currencies rally on virus slowdown hopes

London

THE dollar lost ground on Tuesday as riskier currencies rebounded on tentative hopes that lockdowns may be slowing the spread of the novel coronavirus in some countries. Bets that the world's biggest crude producers may cut supply to support oil prices also boosted market sentiment.

The greenback - the world's reserve currency - has swung wildly in recent weeks in volatile trading. But action by central banks to ease a mad scramble for dollars has helped bring some calm to markets.

The dollar was last down 0.7 per cent versus a basket of currencies, mirroring improved risk sentiment across equity markets. Sterling also rallied, even as traders awaited news on the condition of British Prime Minister Boris Johnson, who is fighting worsening Covid-19 symptoms in intensive care. Analysts said that while news of Mr Johnson's condition was clearly a concern, beyond a dip in Asian hours it had not yet moved the pound as it was unlikely to mean a change in the government's policy direction to fight the virus. Sterling was last up 0.6 per cent.

The dollar was down 0.1 per cent against the yen as Japanese Prime Minister Shinzo Abe declared a state of emergency for parts of the country on Tuesday to counter the spread of Covid-19.

The euro rose 0.8 per cent, last trading at US$1.08835.

"We've got a nice decline in volatility across forex and equity markets. We know central banks have done a very good job in alleviating the strain in dollar markets and that's feeding through," said Kenneth Broux, FX strategist at Societe Generale. "We need some time for this to settle ... I think what we are seeing is a bit of mean reversion - a correction from exaggerated selling. We are in that process."

Dollar borrowing costs in swap markets have retreated, with swap rates against the euro and pound falling to their lowest levels in more than a decade this week. Oil also rose on Tuesday amid hope that oil producers will agree to cut output in the face of crushed demand due to the Covid-19 pandemic.

Commodities-exposed currencies including the Norwegian kroner and South African rand rallied particularly strongly, both up more than 2 per cent on the day.

The Norwegian kroner hit a fresh three-week high versus the dollar, at 10.4612 kroner per dollar. The Australian dollar was last up 1.5 per cent. The Reserve Bank of Australia kept policy on hold at a meeting overnight after it already slashed interest rates and embarked on quantitative easing. Those currencies were battered last month when investors dumped them for the safety of the US dollar.

"With evidence continuing to build that the lockdowns are proving effective at slowing the spread of Covid-19, market participants' focus is beginning to shift to when and how the lockdowns could be eased," analysts at MUFG said in a note. REUTERS

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