SINGAPORE- The dollar inched higher on Thursday as rising coronavirus cases and scant progress towards a US stimulus deal unsettled investors, while the Aussie dropped to a one-week low after the central bank chief hinted of a possible rate cut or bond buying.
France has imposed curfews as autumn brings a steep rise in infections, and the fear is that a new wave of lockdowns could stall the global recovery just as hopes for US stimulus before the Nov. 3 election are fading.
The safe-haven yen stayed just shy of a two-week peak on the dollar. The greenback held or gained ground elsewhere, except against sterling which had jumped on signs of progress in Brexit talks.
The Australian dollar lost half a percent to $0.7129 after Reserve Bank of Australia Governor Philip Lowe mentioned bond buying and a small rate cut as among options for policy support during the next stages of recovery.
Lowe said Australia’s 10-year yield was among the highest in the developed world and the central bank was studying what benefits could come from buying longer-dated debt. He said it was possible to move rates from a record low 0.25 percent to 0.1 percent.
“These are pretty explicit policy options,” said Westpac FX analyst Sean Callow. “There was enough vibe in there for the market to lean towards (thinking) that they will do something.”
Slightly better-than-expected Australian employment data did little to shift those expectations.
Money markets are priced for a November rate cut and bond markets think the RBA could start buying further along the curve, with 10-year bond futures YTCc1 up 8.5 ticks to their highest since April.
AUD/Meanwhile, US stimulus plans appear bogged down.
“Getting something done before the election and executing on that would be difficult,” US Treasury Secretary Steve Mnuchin said on Wednesday, adding that he and Democrat House Speaker Nancy Pelosi are still “far apart” on their spending priorities. — Reuters