- Dollar rally loses steam, but weekly gain huge
- Aussie, pound lift from milestone lows
- Signs of dollar shortage remain
- Graphic: World FX rates in 2020 https://tmsnrt.rs/2RBWI5E
The dollar was headed for its biggest weekly gain since the 2008 global financial crisis on Friday, even as its rally lost some steam, with the coronavirus pandemic driving a dash for cash that is straining the world's financial plumbing.
The dollar is up 3.7% on a basket of currencies =USD through a week when investors have liquidated everything from stocks to bonds, gold and commodities for the safety of cash.
The Australian dollar AUD=D3 led Friday's partial recovery among beaten-down majors with a 1.7% gain to $0.5839. Sterling GBP=D3 rose 1.3% from a 35-year low to $1.1636.
The yen JPY= rose 0.6% to 110.05 per dollar. But with signs of stress in the financial system still elevated - even as central banks across the globe pump cheap dollars to banks - few expect a reversal of the dollar's rise.
"People are selling everything and the common thread is they just want cash," said Stuart Oakley a Singapore-based executive with Nomura, who runs the bank's trading with its clients.
"People just want cash because at the end of the day, people don't know where their next revenue is coming from and they've got payments to meet. I don't think that's going to change."
Virus news has also been grim. An official in Tehran tweeted that the coronavirus was killing one person every 10 minutes. In Italy, soldiers were called in to shift the dead from a cemetery overwhelmed by the numbers.
California on Thursday issued a stay-at-home order for its 40 million residents, as cases in the United States surge past 13,000.
"We anticipate that the USD can retain its new-found poise for several more months," said NAB head of FX strategy Ray Attrill in a note.
"The deeper the global downturn the lower the nadir in the AUD and NZD," he said, with worst-case forecasts pointing to a low of $0.53 for the Aussie and $0.45 for the kiwi.
Already the dollar's gains over the past few weeks and months have been staggering. The Australian dollar is down almost 30% on the greenback since the start of this year and has not had a two-week drop so deep since 2008.
Norway's central bank is considering FX intervention after a 20% fall in the krona NOK= in a fortnight.
The desperation for dollars has also been evident in the bond market, where liquidity has been poor and an inverse relationship with stocks has broken down.
To try and alleviate the strain, the U.S. Federal Reserve overnight extended a discount dollar funding facility to nine more central banks, so that dollars can wash across the globe.
But stress, reflected in cross-currency basis swaps which show the cost of borrowing dollars abroad, has barely abated.
The premium over interbank rates that investors were paying to swap yen for one-year dollar funding JPYCBS1Y= was around 68 basis points, still close to the 2016 highs hit last week.
Euro cross-currency basis swap spreads also remain wide EURCBS3M=ICAP and so is the FRA-OIS spread USDF-O0X1=R , a barometer of risk in the interbank market.
"World markets are still very, very nervous," said Westpac FX analyst Imre Speizer. "People are scrambling for (cash) any way they can."
