Dollar hits three-year lows versus risk currencies after Fed's dovish message

Thursday,   25-Feb-2021   03:10 PM (IST)

The dollar index fell to its lowest since early January on Thursday and dropped to three-year lows against the Australian and Canadian dollars, after dovish signals from the U.S. Federal Reserve boosted the reflation trade in currency markets. Easy financial conditions, the promise of fiscal stimulus and accelerating COVID-19 vaccine rollouts have driven money into what’s known as the reflation trade, referring to bets on an upswing in economic activity and prices. Commodity-linked currencies are placed to benefit from a pickup in global trade, while investors have also cheered Britain’s progress in recovering from the coronavirus pandemic. Fed Chair Jerome Powell reiterated on Wednesday that the central bank will not tighten its policy until the economy improves. The Australian dollar, which is considered a liquid proxy for risk appetite, was up 0.3%, after reaching a three-year high of 0.7994 versus the U.S. dollar. The Canadian dollar was also at a three-year high against the U.S. dollar, at 1.2486. The New Zealand dollar was close to the previous session’s three-year highs, flat on the day at 0.7446 at 0830 GMT. Oil prices have rallied around 30% since the start of the year, taking the commodity-linked Norwegian crown to its strongest since late 2018 against the dollar. The euro touched its highest in over a month versus the dollar, briefly rising above $1.22.