SINGAPORE- The US dollar steadied on Tuesday as rising coronavirus cases and doubts over the speed and size of US stimulus tempered traders’ upbeat mood, while investors were also cautious ahead of the Federal Reserve’s policy review later in the week.
Bonds held gains though hard-running equity markets cooled in Asia, and the cautious move into safer assets held the dollar index at 90.353, roughly in the middle of a range it has kept for the past two weeks.
The euro and yen were likewise hemmed in, with the euro unable to break resistance around $1.2190 while the continent grapples with new COVID-19 infections and fresh lockdowns.
The common currency took a knock on Monday from slumping German business morale, and nursed those small losses to trade around $1.2142 in the Asia session.
The yen was steady at 103.71 per dollar, while the risk-sensitive Australian and New Zealand dollars softened slightly.
“Markets have come a long way on the hope that COVID goes away and governments spend a lot of money,” said Westpac currency analyst Imre Speizer.
“Both of those have stalled at the moment, and so markets will stall as well,” he said, leaving the kiwi, for example, in “indecision mode” between $0.7150 and $0.7240.
“One of those needs to break to give you direction for the next couple of weeks,” Speizer said. The kiwi was last down 0.1 percent at $0.7190 and the Australian dollar down 0.2 percent at $0.7699. Sterling slipped 0.1 percent to $1.3662.
Tight liquidity lifted the Chinese yuan. Oneyear onshore yuan forwards rose to their highest levels of 2021, while the onshore spot price edged up 0.1 percent to 6.4713.
Investors last week added to bets that the dollar is going to get weaker, dragged down by budget and trade deficits, and short dollar positions have hit an almost ten-year high.
However currency markets have entered a holding pattern while waiting to see whether the Democrats’ big virus relief package can clear Congress and whether COVID-19 vaccines actually start turning the tide on the pandemic.
US Senate Majority Leader Chuck Schumer said Democrats may try and pass much of President Joe Biden’s $1.9 trillion spending package with a majority vote, but it is not clear if they have the numbers to override Republican objections.