Calm returns in Asian currency markets, but analysts warn of more volatility to come

Discovery of the Omicron variant

| Update:
Dec. 14, 2021, 10:55 a.m.

Foreign exchange markets calmed down in Asia on Monday after the initial shock of the discovery of the Omicron coronavirus variant prompted investors to take shelter last week, but analysts warned of greater volatility with still little information on the new strain.

The risk-sensitive Australian dollar rose 0.37% to $ 0.7139, rallying after falling 1% on Friday that saw it dip to $ 0.71125 for the first time since August 20, Reuters reports .

The Canadian dollar also rebounded, with the greenback slipping 0.57 percent to C $ 1.2726, from the previous session’s two-month high of C $ 1.2800.

The safe haven yen, which had been the biggest beneficiary of the flight to quality, slipped 0.25% to 113.75 per dollar. The Japanese currency jumped 2% at some point on Friday to 113.05.

The South African rand recovered from its one-year low on Friday at 16.3675 per dollar, jumping 0.93% to 16.1400.

South Africa discovered the Omicron variant last week, and countries around the world quickly tightened border controls with mutations in the spike protein suggesting it may be resistant to current vaccines.

Despite the rapid response, Omicron has since been detected in places like Australia, Britain, Canada, Germany and Hong Kong.

BioNTech said on Friday it could know within two weeks whether the vaccine it developed with Pfizer needs to be reworked.

“Until then, market volatility is expected to remain high,” Rodrigo Catril, senior currency strategist at National Australia Bank, wrote in a client note. “The markets have been forced to reassess the outlook for global growth until we know more.”

“We expect currencies to be volatile this week,” echoed Joseph Capurso, strategist at the Commonwealth Bank of Australia. “It won’t take a lot of negative news on Omicron to push the AUD below $ 0.7000.”

US President Joe Biden will update later Monday on the US response to the new variant.

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

While the dollar should benefit from the uncertainty over its safe-haven status, it darkens the outlook as to when the Federal Reserve – and other global central banks – will be able to raise interest rates.

The euro, which jumped 0.98% on Friday as traders closed short positions, slipped 0.23% to $ 1.1290.

The British pound was roughly flat at $ 1.3335, from Friday’s 11-month low of $ 1.3278.

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