Souring risk sentiment lifts US dollar

London

RISKIER currencies such as the commodity-linked Australian dollar, Canadian dollar and the Norwegian krone fell to multi-week lows against the US dollar on Thursday, as souring risk sentiment in global markets boosted the greenback.

Falling stock markets in the US on Wednesday, in Asia overnight, and in Europe on Thursday contributed to a shift in sentiment. By 11.38am GMT, the US dollar edged 0.05 per cent higher against a basket of currencies.

It gained against the Aussie, which lost as much as 0.8 per cent to 75.92 US cents, its lowest level against the buck since Dec 29. The neighbouring New Zealand dollar, or Kiwi, fell half a per cent to 71.22 US cents. The Canadian dollar, or loonie, hit its lowest levels in a month, weakening to as much as 1.286 per US dollar. Norway's krone slumped to its lowest in five weeks at 8.7286 per US dollar, falling as much as 0.8 per cent in London trade.

Analysts note that some of the optimism around vaccines fuelling a recovery in the global economy has evaporated, given that several countries, especially some in Europe, have been slow to roll them out and have faced problems doing so.

The European Union, which is far behind the US, China and Britain in deploying a vaccine, demanded that AstraZeneca spell out how it would supply the bloc with reserved doses of its Covid-19 vaccine from plants in Europe and Britain.

"The story of weakness in the European recovery continues,"said Lars Sparresø Merklin, senior analyst at Danske Bank. "A shortfall in vaccines is now at centre-stage, and risk aversion to European assets from earlier in the week has spread to global assets. The US dollar has been the natural winner." There were also expectations of more dour economic news, with data expected to show the US economy likely contracted at its sharpest pace since World War II in 2020 amid the pandemic.

The Federal Reserve on Wednesday left its benchmark overnight interest rate near zero, and pledged to continue injecting money into the economy through bond purchases, noting that "the pace of the recovery in economic activity and employment has moderated in recent months".

Despite the rise in the US dollar however, analysts still remain bearish on the currency. "Market noise may persist a bit longer, but we remain positive on risk assets overall and bearish US dollar over time, with the Fed as an important driver," strategists at CitiFX said in a note to clients. REUTERS