US dollar hits new highs amid rush for funding

London

THE dollar extended its gains on Wednesday and hit new multi-year highs against both the Australian and New Zealand dollars, as companies and investors worried by the novel coronavirus outbreak rushed to the world's most liquid currency.

As major currencies wilted against the greenback, the Norwegian crown hit a new record low of US$10.4564. Signs of stress were everywhere as global central banks resumed their efforts to keep money markets functioning normally.

The US Federal Reserve said on Tuesday it would reinstate a funding facility used during the 2008 financial crisis to get credit directly to businesses and households.

Both the European Central Bank and the Bank of England are due to hold US dollar auctions later on Wednesday, moves likely to be closely watched. The Swiss central bank will also meet and could direct further firepower at its economy.

"This is a story of a strong dollar. The Fed's action was better than doing nothing, but at the same time the focus is on signs of when this crisis will end," said Jane Foley, senior FX strategist at Rabobank.

GET BT IN YOUR INBOX DAILY

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign UpVIEW ALL

"Everyone understands the shortfalls of central banks. They can't actually physically get people back through the doors of shops."

Markets have crumbled this month as investors liquidated nearly everything for cash, driving up the dollar's value and the cost of borrowing the greenback abroad.

The US dollar was last up nearly 0.3 per cent against a basket of currencies, after hitting an almost three-year high in earlier trading.

It has gained more than 5 per cent over the past two weeks.

Export exposed currencies fared particularly badly versus the greenback. The Australian dollar sank to a fresh 17-year low of US$0.59215 on Wednesday, while the New Zealand dollar hit a decade low of US$0.5850 cents.

Only perceived safe-haven currencies managed to hold their ground against a strengthening greenback with the safe-haven yen up around 0.2 per cent to 107.42 yen. The Swiss franc was up by a similar magnitude to 0.9598 francs.

"It all stems from a shortage of US dollars," said Gunter Seeger, senior vice-president in investment-grade fixed income at New York asset manager PineBridge Investments.

"People are very, very nervous," he added. "Everyone's nervous about the virus, about oil prices, about their job, about everything." REUTERS