New gains for USD, as the appetite for risk decreases

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The United States Dollar started the week very well, rising 0.35% to 98.885 on Monday, as the COVID-19 outbreak continues to spread across the United States, decreasing any appetite for risk from investors.

“After all, the dollar is a safe-haven currency,” says Rodrigo Catril, senior FX strategist at National Australia Bank in Sydney. “It’s reflecting caution, and an uncertain market where you’re seeing a lot of liquidity.”

The AUD/USD pair registered a 0.42% loss to 0.6139, despite Treasurer John Fryndenburg’s announcement regarding further income support for workers, as part of a third stimulus package, in an attempt to save the economy.

Asia keeps showing recovery signs

In contrast, pairs like USD/CNY and USD/JPY are still showing signs of optimism. The first managed to regain the losses registered earlier in the session, gaining 0.01% to 7.0949, while its Japanese counterpart lost its earlier gains, being 0.44% down to 107.41.

“Risk aversion has been more important to the direction of the dollar than traditional interest rate differentials,” believe Standard Chartered’s analysts, according to a note.

“For the dollar to surrender some of its recent gains, investors would need to shift their preferences back to a broader base of safe-haven assets,” the same note reads.

Should we expect worse for USD?

Over the past two weeks, the United States Dollar posted its biggest weekly rise, ever since 2008’s financial crisis. This came as a result of investors and companies rushing into the most liquid currency in the world. However, it also registered its biggest weekly drop since 2009.

For the moment, the signs of funding stress have eased but not completely gone, as hard-dollar cash remains in very high demand. Analysts believe that the USD could go through another round of losses, as the United States is now the center of the coronavirus epidemic, with almost 160,000 cases so far.

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