US dollar steadies as vaccine optimism wanes

London

THE US dollar stabilised as optimism about a potential Covid-19 vaccine was offset by worries about how the drug will be delivered, and by a surge of new infections in the United States.

The New Zealand dollar recovered from an early dip to its strongest in a year-and-a-half as traders scaled back bets that the central bank would move to negative interest rates.

Initial optimism about a Covid-19 vaccine pushed the US dollar down against riskier currencies, and up against the safe-haven yen and the Swiss franc. That momentum is starting to fade because obstacles remain before a vaccine can be distributed.

"With the global daily infections from the coronavirus accelerating yesterday, it seems that concerns over the pandemic's economic impact may have limited further gains in equities and other risk-linked assets," said Charalambos Pissouros, senior market analyst at JFD Group. "It is still too early to start cheering that the Covid era is behind us."

The euro was last trading flat at US$1.1809, while the Japanese yen fell 0.1 per cent against the US dollar at 105.38. Sterling was around 0.1 per cent stronger against both the US dollar and the euro. The yuan was stable in the offshore market at 6.6016.

Sentiment for the US dollar got a boost after Pfizer and BioNTech said on Monday their experimental coronavirus vaccine was 90 per cent effective.

The biggest mover in the G-10 space was the Kiwi dollar, which jumped to 0.6904 versus the US dollar in the Asian trading session, its highest since March 2019. It was last trading up 0.8 per cent on the day. Against the Australian dollar, the Kiwi strengthened 0.7 per cent at 1.0587.

The Reserve Bank of New Zealand (RBNZ) kept interest rates on hold at 0.25 per cent and introduced a new monetary policy tool to encourage more loans by reducing borrowing costs for banks, which matched market expectations. RBNZ governor Adrian Orr also said domestic economic activity since August has been more resilient than previously assumed, which many traders took as a sign that the chance of negative interest rates had receded.

"As a risk-linked currency, the Kiwi may continue to gain against the US dollar if the financial community stays in a risk-on mode; and due to the lowering of the negative-rate chance, it may even outperform the other commodity-linked currencies, namely the Aussie and the Loonie (Canadian dollar)," Mr Pissouros said. REUTERS