Dollar drifts downward as investors cling to stimulus hopes

By Tom Westbrook

SINGAPORE (Reuters) – The dollar drifted toward a second consecutive weekly loss on Friday, as higher commodity prices and persistent hopes for U.S. stimulus supported investor sentiment and riskier currencies.

Talks have resumed between U.S. House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin over coronavirus aid plans, two days after President Donald Trump ended them.

Limited progress kept dollar losses and other majors’ gains modest overnight, but the dollar eased 0.06% against a basket of currencies and it is down 0.3% for the week.

The prospect of stimulus to support recovery in the world’s biggest economy has weighed on the dollar in the short-term by improving investors’ mood and their willingness to buy riskier assets such as stocks and commodity currencies.

Investors are also regarding improving chances of a Joe Biden presidency as increasing the likelihood of stimulus, since Democrats are pressing for the largest spending package.

“Market participants are travelling with the idea that a new round of U.S. fiscal stimulus is coming regardless, the uncertainty is more around whether it will happen before the election and how big it will be,” said Rodrigo Catril, senior FX strategist at National Australia Bank in Sydney.

“Investor confidence is growing that Biden will win the Presidential election by a clear margin, reducing the risk that Trump disputes the result.”

The risk-sensitive Australian dollar rose 0.4% overnight and was steady early in the Asia session on Friday. It is flat for the week, despite analysts interpreting a Tuesday central bank statement as a signal of monetary easing to come.

The New Zealand dollar has mostly recouped Thursday losses made after another dovish signal from the Reserve Bank of New Zealand and was steady at $0.6586 on Friday.

The safe-haven Japanese yen has been sold with the upbeat mood and held steady just above a three-week low on Friday at 106.02 per dollar. It is down almost 0.7% this week.

The euro was steady at $1.1763 and sterling was flat overnight and has held firm this week as prospects for a Brexit deal have appeared to improve. It was last at $1.2937.

Elsewhere, a 10% surge in oil prices this week, on optimism about stimulus and supply disruptions owing to a storm in the Gulf of Mexico and strike in Norway, has boosted oil-linked currencies.

The Canadian dollar is set for its best weekly rise in more than two months, adding 0.9% to C$1.3191 per dollar. The Russian rouble has also gained about 1% for the week.

China’s equity, commodity, currency and bond markets resume trade today after the Mid-Autumn holidays, and traders expect a jump in the onshore yuan to catch up with offshore gains.

“USD/CNY will move closer to USD/CNH’s current level of 6.74,” said Commonwealth Bank of Australia analyst Kim Mundy.

The yuan last stood at 6.7355 in offshore trade. The midpoint of its onshore trading band is fixed at 0115 GMT and trade begins a quarter of an hour later.

(Reporting by Tom Westbrook; editing by Richard Pullin)