Cash dash has dollar set for best week since 2008 crisis

By Tom Westbrook

SINGAPORE (Reuters) - The dollar was headed for its biggest weekly gain since the 2008 crisis on Friday, as the coronavirus pandemic drives a dash for cash that is stretching the world's financial plumbing.

Even the U.S. Federal Reserve's extension of discount dollar funding - already available to six of the world's biggest central banks - to nine more overnight showed only the most tentative signs of satisfying demand for greenbacks.

In volatile trade in Asia on Friday the British pound fell to a fresh 35-year low of $1.1414. The Aussie and kiwi oscillated in a 1.5 cent range - eventually turning positive.

The dollar rose 0.5% against the yen to a month-high of 111.30 yen . Already thin liquidity was reduced further by a Japanese public holiday, exacerbating sharp moves.

"World markets are still very, very nervous," said Westpac FX analyst Imre Speizer. "People are scrambling for (cash) any way they can," he said.

The coronavirus pandemic and the draconian quarantine measures to slow its spread have ground global commerce nearly to a halt, driving a huge real demand for borrowed dollars so that idled businesses can cover costs.

At the same time, currency traders want dollar positions and investors need cash to cover losses in the stock market, and are liquidating everything from gold to bonds to get the dollars.

The dollar greenback has gained 4.5% against a basket of currencies (=USD) this week so far, its best since 2008.

It is also on track for its largest weekly gain on the euro in nearly a decade and its best week on most other majors since the depths of the '08 crisis. It has gained almost 30% against the Australian dollar this year and last sat at $0.5790.

The dollar's 20% rise against the oil-exposed Norwegian krone over two weeks has Norway's central bank considering intervening to support its currency, a step it has not taken in more than 20 years.

Australia's central bank chief also raised the possibility of FX market intervention on Thursday.

The scramble has already prompted the U.S. Federal Reserve to allow 15 central banks around the globe to borrow dollars cheaply against their domestic currencies.

Yet stress, which is evident in cross-currency basis swaps, remains evident in the cost of borrowing dollars abroad and in the week's 4% decline in the gold price.

The premium over interbank rates that investors were paying to swap yen for one-year dollar funding was around 72 basis points, still close to the 2016 highs hit last week.

"Foreign borrowers with $12 trillion of dollar-denominated debt worldwide are hoarding as many dollars as they can in order to be able to service their debts," said Mathieu Savary, Strategist at BCA Research.

"(At) some point, there will be enough dollar supply to calm the markets. Gold prices are an indication that we are not there yet."