Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

Stimulus hopes press dollar to one-month low; yuan soars

Published 10/20/2020, 08:17 PM
Updated 10/20/2020, 11:55 PM
© Reuters. FILE PHOTO: U.S. dollar notes are seen in this picture illustration

© Reuters. FILE PHOTO: U.S. dollar notes are seen in this picture illustration

By Tom Westbrook

SINGAPORE (Reuters) - The dollar hit a one-month low on Wednesday as investors who are optimistic about a pre-election U.S. stimulus package sought out riskier currencies, while the strong recovery in China's economy helped drive the yuan to a two-year high.

President Donald Trump has raised hopes for a stimulus breakthrough, saying he was willing to accept a large aid bill, despite opposition from his own Republican Party.

That sent U.S. 10-year Treasury yields (US10YT=RR) to a four-month high, in anticipation of more government borrowing, and pressed the dollar index (=USD) to its lowest level since September by boosting investors' mood.

Doubts that any package can actually pass the Senate are keeping the dollar from breaching last month's two-year lows.

The dollar index was last down about 0.1% in Asia.

The Australian and New Zealand dollars, which have lagged other majors' gains on the greenback due to expectations of monetary easing in both countries, each rose about 0.4%. [AUD/]

The euro (EUR=) hit a one-month high of $1.1844.

"U.S. stimulus faith remains in play," said Sook Mei Leong, ASEAN head of global markets research at MUFG in Singapore.

"This is notwithstanding that euro/dollar remains vulnerable to the stream of ... increases in COVID-19 cases and crimped economic activities from the re-introduction of lockdowns."

Such worries and the drawn-out and oscillating fortunes of the U.S. stimulus bill have held the dollar in its range this month and will determine its next moves.

The Japanese yen has likewise been held in stasis as the brightening mood weakens the greenback, but the simultaneous rise in U.S. yields attracts investment flows from Japan out of yen and in to dollars. The yen edged up 0.1% on Wednesday.

"All eyes are on whether a U.S. stimulus bill is agreed upon," Kim Mundy, currency analyst at the Commonwealth Bank of Australia (OTC:CMWAY) in Sydney, said in a note.

"Without a more aggressive U.S. fiscal thrust, the U.S. economic recovery is at risk and the dollar is vulnerable to a renewed bout of strength in the short-term."

YUAN SHOW IN TOWN

In contrast to the dollar's dependence on stimulus hopes, the yuan extended a remarkable rally on Wednesday, hitting a 27-month high and pulling China-exposed Asian currencies with it.

The yuan has soared 7.6% on the dollar since May as China has led the global coronavirus recovery and its stock and bond markets have soaked up offshore capital flows.

A firm onshore guidance rate fixing on Wednesday assuaged worries that policymakers are concerned about its rise.

"China is the strongest economic story in town, relative to Europe and the U.S.," said Bank of Singapore currency analyst Moh Siong Sim. A Joe Biden presidency, he added, could also provide support by calming Sino-U.S. relations.

Data on Monday showed China's economic growth accelerating as the pandemic recedes, and a state planning official on Wednesday said auto sales and production could hit last year's levels.

The yuan was last up 0.2% at 6.6532. Its rise helped lift the Australian dollar , weighed down by expectations of a rate cut in November, from Tuesday's three-week low.

The South Korean won , Singapore dollar and Thai baht also rallied. The Indonesian rupiah hit a two-week high after solid demand in a Tuesday debt auction.

Later on Wednesday, preliminary Australian retail sales figures are due. At 0730 GMT, European Central Bank President Christine Lagarde and chief economist Philip Lane host a broad strategy review event in Frankfurt.

© Reuters. FILE PHOTO: U.S. dollar notes are seen in this picture illustration

The U.S. Federal Reserve releases its "Beige Book" economic survey at 1800 GMT.

Latest comments

Stimulus is impossible before elections. Gold will drop deadly. Dollar diverging, hitting bottom. Tables gonna turn hard in a week.
So does mean it is a strong sell for Dollar?
The FED is scared to death by deflation. They can’t outprint the debt that outnumbers the profits.
Anybody explain it. When there will be a stimulus why all the fools buying Gold.
Stim = money printing = inflation = devalued dollar = strength in real assets like precious metals
perhaps the fools is not so fool after all.. :)
A government paying money into the private sector only feeds THE ILLUSION that that government's economy is benefitting by it. Think about it.
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.