(C) Reuters. A U.S. Dollar banknote
By Tom Westbrook
SINGAPORE (Reuters) – The dollar slipped and riskier currencies rallied on Tuesday as the U.S. Federal Reserve prepared to start its corporate bond buying scheme, while a report flagging the possibility of more fiscal stimulus helped underpin investor sentiment.
The Fed said it would start purchasing corporate debt on Tuesday as part of an already announced stimulus scheme, and launched its Main Street Lending Program for businesses.
The move boosted confidence across asset classes and underpinned risk-sensitive currencies like the Australian and New Zealand dollars.
Investor sentiment was further lifted by a Bloomberg News report saying that President Donald Trump’s administration is mulling a nearly $1 trillion infrastructure programme to boost the economy, citing anonymous sources.
Taken together, the news served as more proof that authorities will “do what it takes” to get the world’s biggest economy back on track, said Imre Speizer, FX analyst at Westpac in Auckland.
Against a basket of currencies the dollar (=USD) was broadly steady at 96.489, about 1% below Monday’s high of 97.396. The greenback slipped against most Asian currencies. [EMRG/FRX]
The Australian dollar extended gains made late on Monday to hit $0.6977, two cents or almost 3% above the two-week low it touched a day ago. The New Zealand dollar briefly pushed above 65 cents to $0.6508. [AUD/]
Elsewhere, the euro (EUR=) edged up to $1.1343 and sterling rose 0.6% to test its 200-day moving average at $1.2680.
DON’T FIGHT THE FED
The Fed will make its corporate debt purchases in the secondary market, and said it would also be buying bonds directly from issuers “in the near future”. The combined size of the primary and secondary programmes is up to $750 billion.
Individual investment grade bonds, with a remaining maturity of five years or less, are eligible for Fed purchase.
While Morgan Stanley (NYSE:MS) figures showed that represented only a small percentage of the U.S. corporate debt universe, it proved enough on Tuesday to support investor confidence.
“It just seems to reinforce that message that you shouldn’t and can’t fight the Fed here, and everything follows from that really,” said National Australia Bank (OTC:NABZY) head of FX strategy Ray Attrill.
Still, markets have a wary eye on Fed Chair Jerome Powell’s Senate Banking Committee testimony at 1400 GMT, given his gloomy view on the economic outlook, and on the coronavirus’ spread.
Concerns about the depth of economic damage and a growing second wave of infections triggered a sell-off in riskier assets last week and during Monday’s Asian session.
While the Japanese yen was a touch weaker on the day at 107.44 on Tuesday, it has again settled into ranges held since April, suggesting some investors remained cautious.
The Bank of Japan kept monetary settings steady on Tuesday and stuck to its view that the economy will gradually recover from the coronavirus pandemic. Governor Haruhiko Kuroda is due to hold a news conference at 0630 GMT.
Global cases of the novel coronavirus reached over 8 million on Monday, as infections surge in Latin America and the United States and China grapple with fresh outbreaks.
Beijing has banned high-risk people from leaving the Chinese capital to stop the spread of a fresh outbreak, while New Zealand reported two new cases related to recent travel from the UK, ending a 24-day streak of no new infections in the country.
Later on Tuesday, British labour market data due around 0600 GMT may also offer clues as to the Bank of England’s next move at its Thursday meeting.
Traders are expecting it will expand its asset-purchasing programme by around 100 billion pounds ($126 billion).
Dollar under pressure as prospect of more stimulus stokes optimism
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