Safe haven currencies pressured by hopes Omicron is mild

Tuesday,   07-Dec-2021   08:51 AM (IST)

The dollar was supported against safe-haven currencies such as the Japanese yen on Tuesday, hanging on to an overnight jump made with U.S. yields as investors hoped early signs the Omicron variant may be mild will be proved correct. Riskier currencies have also found buyers and the Australian dollar firmed into a central bank meeting that will determine whether or not the Reserve Bank of Australia (RBA) follows the Federal Reserve with talk of early tapering. The Aussie had its best day in seven weeks on Monday, rising 0.7%, and hovered around $0.7040 on Tuesday ahead of the RBA at 0330 GMT. The RBA already abandoned its yield target last month, so any further shift in policy or tone will surprise traders. The yen nursed a 0.6% overnight drop, its largest in two weeks, at 113.47 per dollar. The Swiss franc , another safe-haven currency, suffered its largest one-day percentage fall in nearly three months on Monday. Dropping through its 200-day and 50-day averages to 0.9255 per dollar. Early observations in South Africa suggest those infected suffer relatively minor symptoms compared with previous virus waves. Anthony Fauci, the top U.S. infectious disease official, also said it doesn't seem too severe. Pressure on the euro has resumed as bets firm on higher U.S. interest rates and it fell about 0.2% on Monday to leave it at $1.1283 in early Asia trade. Fed funds futures have priced in more than two full rate hikes next year, beginning in May and overnight U.S. yields rose along the curve lifting 10-year rates 7.6 basis points and back above 1.4%. China, facing a slowing economy, is going in the opposite direction and eased policy overnight with a second cut this year in banks' reserve requirements - though that only seemed to buttress the positive mood and the yuan was steady. Sterling and the kiwi are the outliers and mostly missed out on a bounce. Sterling last sat at $1.3259, not far above last week's 11-month trough of $1.3194 while the kiwi traded at a one-year low of $0.6740 on Tuesday. Speculators are short sterling and Omicron's emergence has added to bets that the Bank of England holds fire on hiking rates at next week's meeting. By contrast rates are already on the up in New Zealand, but the market seems to figure that's bad for growth.