Improved Risk Appetite Keeps Dollar Depressed

The dollar nursed losses on Wednesday as progress in developing a novel coronavirus vaccine and expectations for a fiscal boost from a new U.S. government triggered a shift of funds from the greenback to riskier assets.

The U.S. currency teetered near a twomonth low against the Australian dollar and a twoyear low against the New Zealand dollar, both considered barometers of risk sentiment due to their close ties with the global commodities trade.

Bitcoin, a cryptocurrency known for extreme volatility, also traded near an alltime high, in a further sign that investors are growing more comfortable taking on riskier positions.

The U.S. dollar is expected to continue to fall as progress on a vaccine and the expected choice of former Federal Reserve Chair Janet Yellen as the next U.S. Treasury secretary relieved two big uncertainties for investors.

From here, the Fed will prove a mere auxiliary to maximize fiscal impact by ensuring cheap funding, said John Hardy, head of FX strategy at Saxo Bank.

He said the Fed would do this by printing money and keeping rates low across the yield curve.

On that note, it makes sense to have a former Fed chair helping to maximize that fiscalmonetary coordination under a Biden administration. So the longterm implications of the Yellen nomination are distinctly dollar negative, Hardy added.

Later today, investors will be focused on the minutes from the Federal Reserves latest meeting.

We dont expect much surprise and see limited room…

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