Improved risk appetite keeps US dollar down

London

THE US dollar nursed losses on Wednesday, as progress in developing a Covid-19 vaccine and expectations for a fiscal boost from a new US government triggered a shift of funds from the greenback to riskier assets.

The US currency teetered near a two-month low against the Australian dollar and a two-year low against the New Zealand dollar, both considered barometers of risk sentiment due to their close ties with the global commodities trade.

Bitcoin, a cryptocurrency known for extreme volatility, also traded near an all-time high, in a further sign that investors are growing more comfortable taking on riskier positions.

The US dollar is expected to continue to fall as progress on a vaccine and the expected choice of former Federal Reserve chair Janet Yellen as the next US Treasury secretary relieved two big uncertainties for investors.

"From here, the Fed will prove a mere auxiliary to maximise fiscal impact by ensuring cheap funding," said John Hardy, head of FX strategy at Saxo Bank. He said the Fed would do this by printing money and keeping rates low across the yield curve.

Strategists at ING, in a note to clients, said: "We don't expect much surprise, and see limited room for the minutes to tame the (US) dollar decline. If anything, the risks are skewed to a possible surprise coming from hints at an expansion in quantitative easing in December."

The US dollar stood at US$1.1917 against the euro on Wednesday, close to a two-week low. The British pound bought US$1.3365, close to its highest in more than two months. Against the yen, the US dollar held steady at 104.41.

The dollar index, pitting the US dollar against a basket of six major currencies, was at 92.012 after falling 0.4 per cent on Tuesday. It was last down 0.1 per cent on the day.

The onshore yuan rose to 6.5799 per US dollar on hopes for better Sino-US ties under US President-elect Joe Biden. Other Asian currencies also edged higher.

The Antipodean currencies, which benefited earlier as investors unwound bets for additional monetary stimulus in both countries, eased in early European trade.

Improving risk appetite means the Australian dollar's next target is its high of US$0.7413 on Sept 1.

The New Zealand dollar, which has rallied 5.5 per cent so far this month, is trading just shy of its strongest since June 2018.

Bitcoin, the most popular cryptocurrency, climbed to US$19,221, just short of its record of US$19,666 from December 2017. REUTERS