Dollar on firmer footing as investors seek safety

Reuters SINGAPORE | Updated on March 30, 2020

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The dollar snapped a week of declines and the safe-haven yen found support on Monday, as coronavirus lockdowns tightened across the world and investors braced for a prolonged period of uncertainty.

After its worst week since 2009, the greenback climbed against the pound, euro, kiwi and the Australian dollar in a cautious Asian session.

Sterling was last 0.8 per cent softer at $1.2357, the Aussie down 0.5 per cent at $0.6134, while the euro fell by the same margin to $1.1077.

Against a basket of currencies the dollar rose 0.5 per cent to 98.831.

“Now that the (dollar) funding pressure is easing somewhat, the focus is pretty much shifting towards assessing the damage,” said Bank of Singapore currency analyst Moh Siong Sim.

“And there, the viral infection rate is still up in the air, (and) it's a bit of risk-aversion.”

The safe-haven Japanese yen was steady at 108.02 yen per dollar.

Both the dollar and yen rose against emerging market currencies after a weekend which brought more bad news on the virus front.

Total deaths are nearly 34,000 and the United States has emerged as the latest epicentre, with more than 137,000 cases and 2,400 deaths.

Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases, said the pandemic could ultimately kill between 100,000 and 200,000 people in the US, if mitigation was not successful.

Lockdowns are toughening worldwide and US President Donald Trump, who had talked about reopening the economy for Easter, on Sunday extended guidelines for social restrictions to April 30.

The Chinese yuan also slipped 0.3 per cent in offshore trade to 7.1062 after the People's Bank of China unexpectedly cut a key interbank interest rate, the seven-day reverse repurchase rate, by 20 basis points.

The Singapore dollar jumped briefly after the city-state's central bank eased policy, as expected, but emphasised stability rather than foreshadowing further easing.

Elsewhere the oil-exposed Norwegian krone fell heavily along with declining oil prices and the South African rand crumbled to a record low after Moody's cut South Africa's credit rating.



The dollar's modest gains on Monday barely recover a fraction of the ground it gave up last week, yet that slump followed a massive surge that leaves the US currency still elevated.

Over the past two weeks the dollar first posted its biggest weekly rise since the 2008 financial crisis and then its biggest weekly drop since 2009. Signs of funding stress have eased but not abated as hard cash remains in high demand.

“Risk aversion has been more important to the direction of the dollar than traditional interest rate differentials,” Standard Chartered analysts said in a note.

“For the dollar to surrender some of its recent gains, investors would need to shift their preferences back to a broader basket of safe-haven assets.”

Monday's bond rally showed some signs of a broader flight to safety, but a fall in gold and softness in the yen and Swiss franc suggest investors still favour dollars above all.

The franc fell half a per cent to 0.9562 per dollar.

Yields at the very short end of the US curve dipped into negative territory and the benchmark 10-year yield fell nearly 9 basis points to 0.6713 per cent.

“We aren't wavering in our long-held bullish dollar/emerging markets view,” said Jason Daw, head of emerging markets strategy at Societe Generale.

“It is a risk-off market, until it isn't, and bottom fishing has poor risk-reward.”


Published on March 30, 2020

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