LDN - Business

Vaccine developments keep dollar down; Kiwi hits two-year high

[November 23, 2020] By Elizabeth Howcroft

LONDON (Reuters) - Risk appetite in currency markets was boosted by progress towards a COVID-19 vaccine rollout even as PMI data showed a sharp contraction in euro zone business activity as a result of lockdown restrictions.

AstraZeneca on Monday said that its vaccine could be about 90% effective and it will prepare to submit data to authorities around the world that have a framework for conditional or early approval.

This was the latest in a string of positive vaccine developments after Moderna Inc said on Nov. 16 that its experimental vaccine was 94.5% effective, a week after Pfizer Inc and BioNTech SE said their candidate had demonstrated greater than 90% efficacy, rising to 95% with analysis of full trial data.

Sentiment had been strong overnight after a top U.S. health official said that vaccinations could begin by mid-December.

"From a market perspective, the vaccine news cements our bullish view on most pro-cyclical currencies against the dollar through the turn of the year," Deutsche Bank FX strategists Robin Winkler and George Saravelos said in a note to clients.

The dollar, which fell 0.4% against a basket of currencies last week, continued its downward trend as traders' risk appetite grew and was down 0.3% at 92.086 by 1132 GMT.

The dollar also lost out to the yen, with the pair changing hands at 103.725.

(Graphic: Dollar index https://fingfx.thomsonreuters.com/
gfx/mkt/ygdpzbbnwpw/dollar%20index.png)

The New Zealand dollar surged to a two-year high after strong retail sales data, reducing the risk of further policy easing. It continued to strengthen in the European session, hitting a fresh two-year high of 0.6966 per dollar.

The Australian dollar - a liquid proxy for risk - was up 0.3% at 0.73255.

The Euro-dollar rate crossed $1.19 for the first time in two weeks and was up 0.4% at $1.19005 by 1134 GMT.

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A U.S. Dollar banknote is seen in this illustration taken May 26, 2020. REUTERS/Dado Ruvic/Illustration

"We won’t really unlock euro-dollar much higher unless we can solve the EU-UK trade deal, and the EU budget and recovery fund – those are probably the two things that’ll really get it moving," said Kit Juckes, head of FX strategy at Societe Generale.

European Union leaders will continue to discuss the bloc's 1.8 trillion euro ($2.14 trillion) COVID-19 recovery plan, which has been vetoed by Poland and Hungary, German Chancellor Angela Merkel said last week.

The pound was boosted by hopes for a Brexit deal. The EU's chief Brexit negotiator said that fundamental divergences remain but both sides were pushing hard for a deal.

Euro zone PMI data showed that the bloc's business activity contracted sharply in November - even more than expected - as lockdown measures to control the spread of COVID-19 forced many businesses in the service industry to close.

The bloc's economy is on track for its first double-dip recession in nearly a decade as the coronavirus second wave sweeps across Europe, a Reuters poll suggested last week.

The yuan, meanwhile, was dented by fresh U.S.-China tensions.

The Trump administration is close to declaring that 89 Chinese aerospace and other companies have military ties, restricting them from buying a range of U.S. goods and technology, according to a draft copy of the list seen by Reuters.

The dollar was up about 0.1% against the offshore yuan at at 6.5597 by 1140 GMT.

($1 = 0.8405 euros)

(Reporting by Elizabeth Howcroft; Editing by William Maclean and David Goodman)

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