Antipodeans find footing after Omicron slide

The dollar eased off last week’s highs against riskier currencies as concerns about the Omicron variant dissipated. The expectation of rising inflation, which is driving up interest rates in the United States, has kept the dollar firm against the euro.

After a sharp drop on Friday, the growth-sensitive Antipodeans attempted a rebound in Asia, with preliminary findings from South Africa indicating that Omicron patients had relatively mild symptoms.

The Australian dollar rose 0.3 percent to $0.7023, recovering from a 13-month low. The kiwi gained 0.2 percent to $0.6756, rebounding from a 13-month low set on Friday.

After a weekend thrashing, cryptocurrency prices have leveled off, with Bitcoin finding support near $49,000.

The safe-haven yen fell 0.1 percent to 113.00 per dollar, implying a bumpy ride ahead, with trade-sensitive to Omicron news and ahead of Friday’s U.S. inflation data. Omicron headlines are improving, and the risk-off sentiment may be easing soon.

The euro fell 0.2 percent to $1.1289, while sterling remained stable at $1.3234.

Even after state media hinted at policy easing, China’s yuan remained stable at 6.3700 per dollar. Investors believed China’s trade surplus would keep the currency supported.

Inflation Pressure

Aside from Omicron, the backdrop and weeks ahead provide plenty of reasons for traders to be concerned, as evidenced by volatility gauges on the battered Aussie and Kiwi hitting multi-month highs on Monday.

OCBC anticipates that investors’ attention will shift to central bank meetings in Australia and Canada next week, ahead of U.S. inflation data on Friday. It could settle the rating outlook in the United States. 

Last week, a mixed U.S. jobs report did little to change market expectations of more aggressive U.S. tightening. The consumer price index, which is due on Friday, could provide another reason for early tapering and a stronger dollar.

The U.S. dollar index began the week steady at 96.211, close to the 16-month high of 96.938 set in November. Investors bet that an earlier start to hikes will result in slower economic growth and inflation over time. Hence, longer-term rates have remained stubbornly low.

As well as a lower peak for the funds’ rate – something analysts believe may change.