Dollar holds on to Omicron fears

Dollar holds on to Omicron fears

SYDNEY, Dec 7 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 sounded cautiously optimistic about Omicron and the Australian dollar went up after riskier currencies found buyers, and the riskier currencies have also found buyers, and the Australian dollar has firmed up after it made no policy changes.

The Aussie increased 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, another safe-haven currency, went steady after suffering its largest one-day percentage fall in nearly three months on Monday when it tumbled through 200 day and 50 day moving averages.

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 suggest 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.

Cuts to banks' reserve requirements in China and cuts to rural and small-business rates also gave support to markets' mood without affecting demand for the yuan, which held at 6.3713 to the dollar.

After a wild weekend sell-off, support seemed to return to cryptocurrencies, and bitcoins steadied at $51,230.

Pressure on the euro has resumed as bets on the U.S. rate have gone up far before 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. Treasury yields went up a bit to extend the jumps along the curve on Monday.

The pound was 0.2% to $1.3283, but has lagged other majors since the market is short sterling and reckons Omicron reduces the likelihood of a rate hike next week.

The kiwi fell to a one-year low of $0.6737 on Tuesday, even though the Reserve Bank of New Zealand is on an aggressive path of increases and Assistant Governor Christian Hawkesby talked up the currency.

The market seems to be tired of the NZ good news story, and is 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. The Bank of Canada will hold a meeting on Wednesday, with markets expecting it to set a course for rate hikes next year. The Fed, the Bank of England, the European Central Bank and Bank of Japan will meet next week.