Oct 1, 2020

Currencies | The Dollar: Dollar slips vs most currencies on U.S. stimulus expectations


3-4 minutes - Source: CNBC

A hand holds a series of fanned out U.S. dollar notes.

A hand holds a series of fanned out U.S. dollar notes.

Thomas Trutschel | Photothek | Getty Images

The dollar slipped against major currencies on Thursday in volatile trading, as hopes for U.S. fiscal stimulus cheered investors and spurred them to seek higher-yielding but riskier currencies.

The Chinese yuan gained the most against the dollar, reaching a year-and-a-half high in the offshore market, as a holiday in China dried up liquidity, exaggerating the moves.

In addition, Chinese data on Wednesday showed its economic recovery was on track. Commodity currencies such as the Australian, New Zealand, and Canadian dollars as well as the Norwegian crown also rose versus the greenback.

U.S. House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin were expected to try again on Thursday to reach a deal on COVID-19 relief, while the House of Representatives stood ready for a second day to move a Democratic bill if talks fail.

Mnuchin raised hopes of an agreement by telling reporters that Wednesday’s discussions had made “a lot of progress in a lot of areas.” “The market is latching on to renewed hopes for a stimulus deal,” said Erik Nelson, macro strategist, at Wells Fargo in New York. “Those stimulus hopes seem to be driving much of today’s macro price action.”

Wall Street shares were higher on the day, while U.S. Treasury prices were lower.

In mid-morning trading, the euro rose 0.1% against the dollar to $1.1721.

The Australian dollar rose 0.1% against the greenback to US$0.7168. The New Zealand dollar gained 0.3% to US$0.6631. Against the Canadian dollar, the U.S. dollar slipped 0.1% C$1.3314 .

The dollar index was little changed at 93.851, after earlier falling to 93.522, its weakest level since Sept. 22.
That said, analysts remained skeptical about the dollar’s weakness and looked to fade the moves in risk assets overall.

“From a global macro perspective, the outlook is very much uncertain going into the colder winter months,” said Simon Harvey, FX market analyst, at Monex Europe in London. “There is heightened possibility, especially in Europe, for more localized lockdowns. And that kind of risk-off filtering into the dollar is very much alive and kicking,” he added.

Thursday’s U.S. data had minimal impact on currencies. If anything, they affirmed the tentative nature of recovery in the world’s largest economy.

Data showed the number of Americans filing new claims for jobless benefits fell last week but remained at recession levels, while personal income dropped in August, underscoring the need for another government rescue package for businesses and the unemployed.

U.S. construction spending increased more than expected in August as historically low interest rates boosted homebuilding, but manufacturing activity unexpectedly slowed in September as new orders retreated from a more than 16-1/2-year high.

Elsewhere, the dollar fell to 6.7306 yuan in the offshore market, its lowest since early May 2019. It was last down 0.5% at 6.754 yuan.

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