Euro falls, Aussie jumps as risk appetite picks up

London

MONETARY policy support in China and hopes that the Omicron variant of Covid-19 would be less severe than previously expected boosted currency market risk appetite on Tuesday (Dec 7), with the Australian dollar rebounding and the euro heading back towards 2021 lows.

Global stock markets and oil gained, leaving traders to dump safe-haven currencies and bonds, as markets took confidence from reports in South Africa earlier in the week, saying that Omicron cases there had only shown mild symptoms.

On Sunday, the top US infectious disease official, Anthony Fauci, told CNN "it does not look like there's a great degree of severity" so far.

Developments in China contributed to the risk-on tone, as the People's Bank of China (PBOC) said it would lower the amount of cash that banks must hold in reserve.

This was its second such move this year and is seen as a way to release liquidity to support economic growth. The PBOC also cut the rates on its re-lending facility by 25 basis points, to support the rural sector and small firms.

At 1254 GMT, the dollar index was up around 0.1 per cent on the day at 96.392. The euro was down 0.3 per cent at US$1.1255 - having struggled to recover since hitting its lowest so far in 2021 last month, hurt by expectations that the US Federal Reserve will tighten policy more quickly than the dovish European Central Bank.

German investor sentiment deteriorated in December as a fourth wave of Covid-19 infections and persistent supply bottlenecks in manufacturing clouded the growth outlook for Europe's largest economy, the ZEW survey showed.

The offshore yuan was up around 0.1 per cent at 6.3683.

The New Zealand dollar was also higher, up 0.2 per cent at US$0.6769, and the British pound was steady at US$1.32495.

The Australian dollar, seen as a liquid proxy for risk appetite, was up 0.8 per cent at US$0.7105 at 1301 GMT, extending gains from Monday when it had its best percentage rise in 7 weeks.

At its meeting, the Reserve Bank of Australia made no policy changes, but said that Omicron was not expected to derail the country's economic recovery. REUTERS