Dollar Tumbles, Aussie Strong, Currency Markets Evaluate Vaccine During Second Wave

On Friday the dollar took a tumble, as investors’ eagerness about a possible COVID-19 vaccine was tempered by the second wave of the virus in the United States and Europe and the world’s top central bankers continue to remain wary about an economic recovery. After Pfizer Inc aid its experimental vaccine was more than 90% effective in trails , Global markets surged on Monday. When the news was released we saw the dollar rise as traders deserted their long-yen positions.

After the heads of the Federal Reserve and the European Central Bank (ECB) stressed that the economic outlook remains uncertain, the currency market traders became more exposed to risk. Two  ECB policymakers also said, the expectation of a vaccine is a source of relief but the euro zone will still suffer as a result of new lockdown measures. An FX analyst at CIBC, Jeremy Stretch, said that the market was caught between aspirations for the vaccine in the future and the reality of the current COVID-19 numbers. Stretch said he was waiting to hear about progress in the vaccine being developed by AstraZeneca  and the University of Oxford – another up to date candidate in the vaccine competition.

In the European session the dollar slipped around 0.1%. The yen dropped around 2% versus the dollar on Monday, and continued to claw back some of these losses, up around 0.2%. As for the Australian dollar was up 0.3%. An  FX strategist at Societe Generale wrote, “The prospect of the Fed staying super-easy through the winter and beyond, while vaccine optimism, builds is dollar bearish.” “The big winners in the longer-run are the higher-beta, growth and trade-sensitive currencies,” he said.

The New Zealand dollar was down 0.2% versus the dollar, but still up on the week after jumping to its highest since March 2019 after the Reserve Bank of New Zealand’s meeting on Wednesday. And as for the euro , it was slightly up.