The safe-haven dollar and Japanese yen nursed losses on Thursday, after the revival of hopes for some U.S. stimulus spending improved investor sentiment, while the prospect of negative interest rates dragged on the New Zealand dollar.
President Donald Trump and House Speaker Nancy Pelosi seem open to pursuing a stimulus package for the airline industry, despite Trump halting talks with Democrats for a bigger plan.
Investors also expect a Joe Biden administration, if elected, would quickly spend money to stimulate growth.
That mood has lifted equity markets and sunk the safe-haven yen to a three-week low of 106.11. The dollar struggled to recoup losses against other majors, excluding the kiwi.
The euro edged up to $1.1770. The risk-sensitive Australian dollar held Wednesday gains. [AUD/]
“Perhaps the market is a bit more relaxed about the fiscal stimulus story,” said Bank of Singapore currency analyst Moh Siong Sim.
“We might not get fiscal stimulus pre-election, but if polls are right, and we see a Democratic sweep, we will likely get fiscal stimulus late in the year or early next year.”
With no new news on the stimulus front, and Chinese markets still closed, volumes were lightened and moves slight in Asia.
The New Zealand dollar was the biggest loser among G10 currencies, dropping as far as half a percent after central bank officials again hinted that negative interest rates are in the offing.
Money-market pricing of an April 2021 rate cut deepened after the remarks and the kiwi slipped to a three-week low against the Aussie, before paring losses a little.
It was last down 0.2% against the dollar at $0.6570.
“Today’s rhetoric from the RBNZ leaves us of the view it will cut the official cash rate into negative territory before too much longer,” BNZ economist Craig Ebert said in a note, forecasting rates at -0.50% later in 2021, from 0.25% currently.
FED SPEAKERS ON RADAR
A buoyant mood in equity markets was also supported by hints at even more easing from the U.S. Federal Reserve.
September meeting minutes released on Wednesday showed many participants had assumed the economy would be supported by fiscal spending, and some are open to further debate about the Fed’s bond buying programme.
“This nuance did not come across in Powell’s post-meeting press conference nor in recent speeches,” National Australia Bank economist Tapas Strickland said in a note on Thursday.
“In that vein it is worth noting that the Fed’s (Loretta) Mester on Monday said she might support shifting asset purchases to more longer-dated bonds.”
It has also focused investor attention on speeches from Fed members Eric Rosengren and Raphael Bostic, at 1610 GMT and 1800 GMT respectively, for any further hints at the Fed’s thinking.
Elsewhere the U.S. vice presidential debate did not move currency markets, but reinforced investors’ expectations on the policy settings that Trump or Biden administrations would hold.
“Pence reiterated his hardline stance against China ... meanwhile, Senator Harris said Trump lost the trade war with China,” said Mizuho’s chief Asia FX strategist Ken Cheung.
“That says Biden’s victory should mitigate the risk of resuming the trade war, which could prompt the People’s Bank of China to allow yuan depreciation again to counter the tariffs impact,” he said.
He expects the onshore yuan to be fixed around 6.79 per dollar when trading resumes after a week-long holiday in China on Friday - more or less steady despite a weaker dollar.
The yuan last traded at 6.7898 onshore and is at 6.7389 in offshore trade.
Sterling, weighted by concerns that the latest Brexit talks were proving less promising than hoped, lagged other majors’ gains on the greenback and was steady in Asia at $1.2928.
Bank of England Governor Andrew Bailey is due to speak at 0725 GMT and remarks on negative rates or other policy considerations could move the currency.
Reporting by Tom Westbrook; Editing by Sam Holmes and Richard Pullin