Dollar dips as traders take more sanguine view of coronavirus vaccine
The dollar fell on Wednesday as optimism about a coronavirus vaccine was offset by worries about how the drug will be delivered and by a surge of new infections in the United States.
The New Zealand dollar recovered from an early dip to hit its strongest level in more than a year after the Reserve Bank of New Zealand kept rates on hold as expected and the central bank governor made optimistic comments about the economy.
Initial optimism about coronavirus vaccine testing pushed the dollar up against the safe-harbour yen and the Swiss franc, but this momentum is starting to fade because there are still several obstacles to clear before a vaccine can be distributed.
“The dollar recovery is on hold for now because, when you look at the details, there are still a lot of hurdles to clear before any vaccine is rolled out,” said Junichi Ishikawa, senior foreign exchange strategist at IG Securities in Tokyo.
“However, the dollar is supported by rising Treasury yields, which should help the dollar make another push higher before year’s end.”
The dollar fell 0.14% to 105.10 yen JPY=D3, pulling back from a three-week high.
Against the euro EUR=D3, the dollar eased slightly to $1.1825.
Sterling, however, surrendered some of its overnight gains against the euro EURGBP=.
However, the reaction across financial markets has become more tempered because there are several logistical hurdles to making the drug available, including that it has to be shipped at extremely cold temperatures.
Several U.S. states on Tuesday imposed restrictions to curb the spread of the coronavirus as hospitalizations soared, highlighting the difficulty in containing the virus as winter in the Northern Hemisphere approaches.
The dollar index =USD against a basket of six major currencies fell slightly to 92.651.
Elsewhere in currencies, the New Zealand dollar NZD=D3 hit $0.6868, its strongest since March 2019.
The Reserve Bank of New Zealand (RBNZ) kept interest rates on hold at 0.25% and introduced a new monetary policy tool to drive borrowing costs lower for lenders, which matched expectations.
RBNZ Governor Adrian Orr also said domestic economic activity since August has been more resilient than previously assumed.
Across the Tasman Sea, the Australian dollar AUD=D3 held steady against its U.S. counterpart.