Currencies recover from Omicron chaos but situation volatile

Analysts point out that still too little is known about highly mutated coronavirus variant

OTTAWA • Currency markets in Asia calmed down yesterday after the initial shock of the discovery of the Omicron variant sent investors scurrying for cover, but analysts warned of more volatility with little still known about the new coronavirus strain.

The Singdollar remained at its weakest level this year, at around $1.37 against the US dollar, while neighbouring Malaysia's currency was at RM4.24 against the dollar.

The risk-sensitive Australian dollar rose 0.37 per cent to US$0.7139, recovering after a 1 per cent tumble on Friday that saw it dip to US$0.71125 for the first time since Aug 20.

"Markets have been forced to reassess the global growth outlook until we know more. We expect currencies to be volatile this week," said Mr Joseph Capurso, a strategist at Commonwealth Bank of Australia, adding that it will not take much negative news about Omicron to push the Aussie unit below US$0.70.

The safe-haven yen, which was the biggest beneficiary of the flight to quality, slipped 0.25 per cent to 113.75 per dollar. The Japanese unit surged as much as 2 per cent at one point on Friday to 113.05.

The currency of South Africa, where the variant was identified, rose as much as 1.3 per cent against the greenback, and Mexico's peso echoed those gains.

The recovery comes after investors dumped stocks, commodities and non-haven currencies after the highly mutated Omicron variant sparked international travel bans, spurring concern the fragile global economic recovery will come grinding to a halt.

Investors responded by pruning expectations for rate hikes by the US Federal Reserve, which sent Treasuries soaring.

BioNTech last Friday said it may know within two weeks if the vaccine it developed with Pfizer needs to be reworked. "Until then, market volatility is likely to remain elevated," Mr Rodrigo Catril, a senior FX strategist at National Australia Bank, wrote in a note.

The US dollar index - which measures the currency against six major peers - traded at 96.204, after dipping to a one-week low of 95.973 on Friday.

While the dollar stands to benefit from the uncertainty because of its status as a safe haven, it clouds the outlook for when the Fed - and other global central banks - can raise interest rates.

"We know that central banks can quickly switch to dovish if they need to," Citigroup senior investment specialist Mahjabeen Zaman said on Bloomberg Television. "The liquidity playbook that we have in play right now will continue to support the market."

The euro, which jumped 0.98 per cent on Friday as traders closed out short positions, slipped 0.23 per cent to US$1.129. Sterling was about flat at US$1.3335, off Friday's 11-month low at US$1.3278.

"Despite the irresistible pull of buying-the-dip on tenuous early information on Omicron, we are just one negative Omicron headline away from going back to where we started," Mr Jeffrey Halley, a senior market analyst at Oanda, wrote in a note.

Stock markets, however, continued to see dampened sentiment, with Singapore's Straits Times Index losing 1.44 per cent. Hong Kong's Hang Seng Index fell 0.95 per cent and Japan's Nikkei Index dropped 1.63 per cent yesterday. The Japanese government said it would reinstate its blanket ban on new entries of foreigners.

"There is little information about the Omicron variant, so the market was volatile," said equity strategist Toshikazu Horiuchi at IwaiCosmo Securities. "But the fresh restriction has hurt investor sentiment due to concerns that it may weigh on the economy."

Gold dipped below US$1,800 an ounce, and Bitcoin rallied above US$57,000.


• Additional information from The Straits Times

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A version of this article appeared in the print edition of The Straits Times on November 30, 2021, with the headline Currencies recover from Omicron chaos but situation volatile. Subscribe