Risk-Off Currencies Rallied Monday as COVID-19 Cases Soared

Traders bought safe-haven U.S. dollar and Japanese Yen on Monday, with the greenback skyrocketing almost to its highest point in months. Rapidly spreading delta COVID-19 variant shook market players’ confidence in global economic growth. Investors were also concerned about the U.K.’s reopening.

The risk-sensitive Australian dollar traded under the most pressure among major currencies in the Asian session, plummeting down to a seven-month low of $0.7373. The AUD/JPY continued dropping for the fifth day in a row, reaching its lowest level in five months.

On the other hand, the yen climbed up by 0.1% at 109.25 per dollar, at last, remaining close to its strongest level since April at 129.78 per euro. The common currency exchanged hands at $1.1805, near last week’s three-month low point of $1.1772.

The greenback soared on Monday, reaching its strongest level this year against the Singapore dollar, the Thai baht. The Malaysian ringgit as stocks plunged low and bonds surged forward with the jittery mood on what has been nicknamed “Freedom Day” in England.

Rising COVID Cases Dampen the Mood on The Market

National Australia Bank senior currency strategist Rodrigo Catril noted that the forex market is trading on the uncertainty in the air around the coronavirus pandemic. Daily COVID infections have been rising rapidly from the United States to Europe and Asia, concerning investors. The seven-day global average of new virus cases each day surpassed half a million for the first time since May.

The dollar index steadied marginally to 92.717, trading close to last week’s three-month peak of 92.832. On the other hand, the Canadian dollar tumbled down to its lowest level since April. Through its 200-day moving average, it had a plunge in oil prices.

This Monday marks the end of most social curbs in England, as well as a shift from suppression to trusting vaccination to prevent serious illness. Thus, traders are waiting to see how that will play out.

How Did the British Pound Fare?

The Sterling traded at $1.3754 on Monday, tumbling to its lowest level in more than a week. Epidemiologists are sceptical about the impending economic reopening. Meanwhile, the prime minister, health minister and finance minister themselves were isolated as virus cases spread.

However, Boris Johnson’s government is betting that fully vaccinated citizens are less likely to get seriously ill with coronavirus. Commonwealth Bank of Australia strategist Carol Kong noted that removing restrictions means people will catch the COVID. The question is how many and how sick. Kong thinks that markets will watch closely critical care capacity to indicate that a bed shortage could lead to new lockdowns.

Besides, a rise in infections could foster the emergence of new variants. If these new variants resist existing COVID vaccines and spread worldwide, restrictions and lockdowns could remain in place for longer. That, in turn, would hold back the global economic recovery. Thus, all eyes will be on Britain shortly.

What Other Factors Will Influence the Market This Week?

This week’s data calendar is quite bare until Friday. However, global purchasing managers’ index figures are due that day. Policy and virus response will be in focus in the meantime as lockdowns and restrictions expand in Asia.

There is a chance that China will lower its benchmark loan prime rate on Tuesday. Furthermore, the European Central Bank is due to have a meeting on Thursday. The ECB has hinted that its new guidance may reflect its more relaxed stance on inflation overshooting.

Analysts at MUFG Bank stated that decisive ECB policy action to back up the new policy framework would likely trigger a new euro sell-off when other major central banks are preparing to raise rates. Thus, a failure to act will probably provide some relief for the common currency.

How Did the Chinese Yuan Fare?

China’s Yuan briefly declined to a 10-day low against the greenback on Monday. While the risk-off attitude was the main factor for Yuan’s weakness, many traders also refrained from making huge bets on the currency ahead of China’s monthly benchmark loan prime rate release. LPR is due on Tuesday, and there are broadly divided views on the rating outlook on the market.

Last week, the People’s Bank of China surprised market players by delivering a cut in banks’ reserve requirement ratio (RRR). However, it only partially rolled over a maturing liquidity tool, keeping the one-year rate unchanged.

Before to market opening, the PBOC moved the midpoint rate CNY=PBOC at 6.4700 per dollar. That is five pips firmer than the previous fix, which was 6.4705.

As a result, onshore yuan CNY=CFXS began trading at 6.4760 per dollar in the spot market and later declined to 6.4839, the lowest level since July 9. By midday, it was exchanging hands at 6.4791, losing additional five pips.

Several forex traders noted that they were mainly sitting back and waiting for the next catalyst. Currently, investors’ focus is on the July LPR fixing, influencing the Yuan’s further course.