Aussie hits 2-week low; risk-off mood supports US$

London

THE Australian dollar hit a two-week low on Thursday after the head of the central bank hinted at possible monetary easing, while the risk-off sentiment kept the US dollar supported and most other major currencies on the defensive.

The British pound, lifted by signs of progress in Brexit talks on Wednesday, surrendered some of those gains on Thursday as concerns about trade talks with Europe resurfaced and London faced tighter Covid-19 restrictions.

France has imposed curfews as Covid-19 infections rise and other European Union members were also responding to spiking new cases with fresh restrictions.

Markets fear a new wave of lockdowns could stall the global recovery just as hopes for US stimulus before the Nov 3 election are fading, ditching riskier assets such as equities in favour of safe-haven such as the US dollar and the yen.

"A broader risk-off tone has enveloped markets this morning," said Chris Beauchamp, chief market analyst at IG. "(US Treasury Secretary) Steve Mnuchin's comments about a US stimulus bill now looking unlikely before the election were perfectly placed to unseat a market that had rallied hard on hopes of such stimulus, perhaps naively."

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The US dollar index traded at 93.78, a one-week high, while riskier assets, such as Scandinavian currencies, were down more than one per cent on the day.

In Australia, the central bank is assessing whether buying longer-dated bonds would help the economy and considering an interest-rate cut, Reserve Bank of Australia (RBA) governor Philip Lowe said in a speech. The RBA intervenes to keep the three-year yield at 0.25 per cent but does not control yields further out of the curve.

Marshall Gittler, head of investment research at BDSwiss Group, said he expected the Aussie to weaken relative to other commodity currencies, particularly the Canadian dollar. He added: "I think there's much more room for further loosening in Australia than in Canada."

Money markets price in a November rate cut and bond markets factor in the RBA possibly starting to buy longer-dated debt, with 10-year bond futures up 8.5 ticks at their highest since April.

The Aussie dollar fell about 1.3 per cent to a two-week low of 0.7068 per US dollar and the Japanese yen by

one per cent. The New Zealand dollar followed suit, losing 0.8 per cent against the US currency. REUTERS