Aussie and rand weakened as Omicron spooked investors

On Thursday, the safe-haven yen floated near a six-week high. At the same time, riskier currencies, including the rand, weakened as the new Omicron variant confirmed itself as the aggressive strain in South Africa spreading globally.

Early signs suggest that the Omicron variant might be considerably more contagious than previous strains have confused financial markets on concerns that a return to lockdowns and travel restrictions could negatively affect the global recovery.

The new strain as an indicator

The new strain appeared in Australia, Canada, Britain, and Japan, even though those countries quickly applied restrictions and tightened their borders.

The U.S. dollar edged 0.12% against Japan’s currency, higher to 112.876 yen, but remained close to its low of 112.536.

After a more than 1.1% surge overnight, the greenback was off 0.13% against the South African rand, at 16.0026.

In South Africa, the number of new cases doubled in a day. 

In the United States this week, the first case reported was a fully vaccinated person returning from South Africa. They tested positive after seven days of arrival.

Despite the uncertainty, Federal Reserve Chair Jerome Powell repeated that he and other policymakers would consider a faster taper of stimulus at their meeting scheduled for 14-15 December. It might open the door to earlier interest rates hikes.

Head of FX strategy at National Australia Bank, Ray Attrill, wrote in a note to clients that he, considering Jerome Powell, does not seem uncomfortable about how markets have interpreted his words earlier.

He added that the truth is we all should respect the seriousness of this new variant and the effectiveness of current vaccines and listen to epidemiologists more than market analysts. He said that an informed judgment is more necessary in this situation.

Currencies respond

The dollar index (measuring the currency versus its six peers) edged 0.04% higher to 96.08. It started consolidating over the past three weeks when it increased as high as 96.939 for the first time since the beginning of July 2020.

The risk-sensitive Aussie dollar was nearly flat at $0.7106, not far from Wednesday’s low of $0.7064. It marked its weakest outcome since the beginning of November 2020.

Sterling, as often considered a risky currency, seemed a little changed at $1.3277. It jumped to a near one-year low of $1.31947 on Wednesday.

The euro remained steady at $1.1317. Thus, keeping with its recovery after falling to a near 17-month low of $1.1187 in November.

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