Tags: Forex Market
AUSTRALIAN DOLLAR REMAINS STABLE

Commodity currencies supported by mild Omicron hopes

The dollar index was flat, and riskier currencies pulled up on Tuesday, as traders speculate that the Omicron variant of coronavirus would not be as severe as beforehand expected.

Asian shares staged an improvement overnight. Oil prices advanced as risk appetite extended following reports in South Africa earlier in the week declaring that Omicron cases had only displayed mild symptoms.

On Sunday, the top U.S. infectious disease official, Anthony Fauci, informed CNN that it does not seem like there’s a great degree of severity so far.

ING strategists wrote in a client note that he generally oversold commodity FX segment should experience a big short-squeeze as the market’s concerns on Omicron are declining.

The Australian dollar led gains on Tuesday, higher 0.6% at $0.70915 at 0902 GMT following the Reserve Bank of Australia meeting, stretching gains from Monday when it had its best percentage gain in seven weeks.

The RBA made no policy differences but stated that Omicron shouldn’t derail the country’s economic recovery. Analysts noted that market speculation about quicker tapering of the central bank’s bond-buying also boosted the currency.

Supporting Economic Growth

The New Zealand dollar was also higher, up 0.1% at $0.6764, and the British pound was even at $1.3257.

Meantime, the dollar index was flat at 96.363. Moreover, the safe-haven yen was down about 0.2% versus the dollar at 113.705.

Developments in China are also a risk-on tone. The People’s Bank of China (PBOC) declared it would decrease the number of cash banks must hold in reserve. This year, this was its second move and delivered liquidity to support economic growth.

The onshore and offshore yuan were reduced following the announcement (because ample liquidity usually hurts currencies). However, the yuan increased as traders anticipated more supportive measures to stop the economic slowdown.

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