The dollar’s protracted decline is spurring Group-of-10 peers toward multi-year highs.
The Bloomberg Dollar Index is poised for a 2.7% drop this month, taking its fall since a March peak to 12%. China’s economic rebound and bets on a successful roll-out of vaccines are bringing key levels into play for currencies from the euro to the Aussie and the Canadian dollar.
“The improving outlook for global growth, combined with strong signals from the Fed that it will maintain loose monetary policy well into the economic recovery, have been encouraging a weaker dollar,” said Lee Hardman, a strategist at MUFG Bank in London. “Asian and commodity-related currencies have also been benefiting from the outperformance of China’s economy.”
It’s a turnaround from earlier this year, when the dollar benefited from its status as the ultimate safe haven during the height of the pandemic turmoil in March. Citigroup Inc. sees the greenback dropping as much as 20% in 2021 as vaccines become widely available, while Goldman Sachs Group Inc. favours shorting the currency against the Australian and Canadian dollars.
Record virus infections in the US and division over a new stimulus are also adding pressure on the world’s reserve currency.
Among the key levels that are approaching:
- The euro is approaching a key psychological level of 1.20 against the dollar. If it breaches 1.2011, the common currency would reach its highest since May 2018.
- The Canadian dollar is closing in on C$1.2929 against the dollar, a level not crossed since October 2018.
- The Australian dollar is nearing its year-to-date high of 74.14 U.S. cents. If the commodity currency breaks that, the Aussie would reach its strongest levels since August 2018.
- The pound rising past $1.3482 would put it at its strongest since December 2019.
- The Swiss franc strengthening through 0.8983 per dollar would see it at its strongest since 2015.
- In Asia, the risk-sensitive Korean won is on track to end November 2.6% higher against the dollar for its sixth-straight monthly decline. It’s approaching the key 1,100 psychological level — a milestone last seen in June 2018.
“The dollar has come under pressure as risk sentiment stays buoyant — it started at the end of the US election, and was then powered further by the vaccine news,” said Alvin T. Tan, head of Asia FX Strategy at RBC Capital Markets. “The weakness has further to run.”