The dollar index fell to three-year lows against the Australian and Canadian dollars, its lowest since early January on Thursday. This came after dovish signals from the U.S. Federal Reserve lifted the reflation trade in currency markets.
Certain factors have driven money into the reflation trade. These include financial conditions, fiscal stimulus and COVID-19 vaccine rollouts.
A pickup in global trade benefits commodity-linked currencies. Moreover, investors have also cheered Britain’s progress in recovering from the coronavirus pandemic.
On Wednesday, Fed Chair Jerome Powell reiterated that the central bank would not tighten its policy until the economy improves.
Lee Hardman, MUFG currency analyst, wrote that the improving global growth outlook continues to be supported by loose monetary and fiscal policies.
They are seeing now that the current trading environment remains supportive of commodity-related currency strength. They recommended a long AUD/USD trade, he added.
The dollar index was down 0.1% at 89.92 at 0824 GMT. The Aussie, which is considered a liquid proxy for risk appetite, was up 0.3%. It reached a three-year high of 0.7994 versus the U.S. dollar at 0826 GMT. The CAD was also at a three-year high against the USD at 1.2495 at 0757 GMT.
The New Zealand dollar was close to the previous session’s three-year highs. It was flat on the day at 0.7446 at 0830 GMT.
Since the start of the year, oil prices have rallied around 30%. This has taken the commodity-linked Norwegian crown to its strongest since late 2018 against the dollar.
Versus the dollar, the euro touched its highest in over a month, briefly rising above $1.22. It was at $1.2192, up 0.2% on the day at 0831 GMT.
Euro-Swiss franc has surged this week due to investors quitting the safe-haven franc. Versus the franc, the euro is in its eighth consecutive session of gains. It had its strongest week in percentage change terms since June 2020.
The euro was up around 0.1% versus the franc at 1.1043 at 0834 GMT.
In a note, ING, global head of markets Chris Turner wrote that this is a big vote of confidence in the global recovery. They see EUR/CHF on track to meet our year-end forecast at 1.15, he said in the note.
Polls showed that market participants expect the bull run in global stocks to continue for at least another six months.