SYDNEY Reuters - The dollar was supported against other safe-haven currencies such as the Japanese yen on Tuesday, hanging on to a jump made with U.S. yields, as investors hoped early signs that the Omicron variant may be mild will be proved correct.
The central bank cautiously upbeat about Omicron, though it made no policy changes, has resulted in a stronger Australian dollar, and riskier currencies have also found buyers, and the riskier currencies have also found buyers.
The Aussie rose by 0.2% on the dollar to $0.7066 in the wake of the Reserve Bank of Australia meeting, extending gains from Monday when it enjoyed its best percentage gain in seven weeks.
The Reserve Bank of Australia left rates at a record low but said Omicron was not expected to derail the economy's recovery.
The yen fell by 0.6% on Monday, its largest drop in two weeks, at 113.53 per dollar. The Swiss franc was steady after suffering its largest one-day percentage fall in nearly three months on Monday when it fell through 200 day and 50 day moving averages, as a safe-haven currency.
Although there is still a lot of uncertainty about Omicron's health and economic impact, investors have embraced news from South Africa suggesting that the exponential rise in Omicron infections has not been followed by a big wave in hospitalisations, said Rodrigo Catril, NAB strategist.
Early observations in South Africa indicate that those infected suffer relatively minor symptoms compared to previous virus waves. Anthony Fauci, the top U.S. infectious disease official, said it doesn't seem too severe.
The cuts to banks' reserve requirements in China and cuts to rural and small business rates gave support to markets' mood, but it didn't affect demand for the yuan, which held at 6.3713 to the dollar. After a wild weekend sell-off, CNY support seemed to return to cryptocurrencies.Bitcoin continued to grow at $51,230.
Pressure on the euro has resumed as bets on U.S. rates are higher than those in Europe. The common currency suffered modest Monday losses at $1.1291 on Tuesday.
Fed funds futures have priced in more than two full U.S. rate increases next year, beginning in May. The Treasury yields went up a bit to extend the jumps along the curve on Monday.
The sterling rose 0.2% to $1.3283, but has lagged other majors since the market is short sterling and reckons Omicron will reduce the likelihood of a rate hike next week.
Even though the Reserve Bank of New Zealand is on an aggressive path of increases and Assistant Governor Christian Hawkesby talked about the currency, the kiwi fell to a one-year low of $0.6737 on Tuesday.
The market seems to be fatigued with the NZ good news story and less willing to reward currencies heading for higher interest rates, analysts at the ANZ Bank said. They usually signal strong growth, but higher rates may be a sign of slower growth to come in a constrained world. NZ's top of the pile cash rate and expectations of more hikes to come aren't helping the NZD. Central banks are also in focus, along with Omicron. Markets expect the Bank of Canada to set its course for rate hikes next year, with the Bank of Canada meeting on Wednesday. The Bank of England, the Bank of England, and Bank of Japan will meet next week.