LDN - Business

Dollar gains back strength as vaccine optimism wanes

[November 11, 2020] By Olga Cotaga

LONDON (Reuters) - The U.S. dollar rose on Wednesday as optimism about a potential coronavirus 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 soared to its strongest in a year and a half as traders scaled back bets that the central bank would move to negative interest rates.

Other riskier currencies, like the Norwegian crown and the Australian dollar, also fell against the safe-haven greenback.

"People are taking a little more prescripted approach to the vaccine. The news is undoubtedly positive, but of course we need to delve into the detail and think about the ramifications of the whole process," said Jeremy Stretch, head of G10 FX strategy at CIBC Capital Markets.

Initial optimism about a coronavirus vaccine had pushed the 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.

"We need to remember that this is a vaccine which is unproven in terms of certification, there are all the logistical challenges in terms of its implementation...we need to be a little bit more sanguine about the risks," Stretch said.

He added that market participants should also remember that infection rates in Europe and the United States remain elevated.

The euro hit a six-day low of $1.1756, down 0.5% on the day, while the U.S. dollar rose 0.3% to 105.50 versus the Japanese yen.

"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," he said.

The trade-sensitive Norwegian crown fell 0.6% versus the U.S. dollar to 9.0660. The Aussie dollar fell 0.1% to 0.7276.

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U.S. dollars and other world currencies lie in a charity receptacle at Pearson international airport in Toronto, Ontario, Canada June 13, 2018. REUTERS/Chris Helgren

And the Swedish crown was also 0.5% lower on the day at 8.65 against the U.S. dollar.

Sweden's banks should not pay out dividends until the economic situation regarding the coronavirus pandemic has become clearer, central bank Governor Stefan Ingves said on Wednesday. [nS3N2CP024]

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

The biggest mover in the G10 space was the Kiwi dollar, which jumped to 0.6904 versus the U.S. dollar in the Asian trading session, its highest since March 2019. It was last trading up 0.7% on the day at 0.6876.

Against the Australian dollar, the Kiwi strengthened 0.8% to 1.0578.

The Reserve Bank of New Zealand kept interest rates on hold at 0.25% 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 U.S. 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)," Pissouros said.

The Canadian dollar was down 0.2% at 1.3056 against the U.S. dollar.

(Reporting by Olga Cotaga, editing by Larry King and Chizu Nomiyama)

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