NEW YORK: Risk-sensitive currencies including the Australian dollar were boosted on Monday, while safe havens like the Japanese yen dipped against the US currency, as risk sentiment was boosted by signs the US federal government is closer to reopening.
The US Senate on Sunday moved forward on a measure aimed at reopening the federal government and ending a 40-day shutdown that has sidelined federal workers, delayed food aid and snarled air travel.
The perception that Democrats will be damaged by failing to achieve their aims during the shutdown may also be boosting risk appetite as people look ahead to next year’s midterm elections, said Adam Button, chief currency analyst at investingLive in Toronto. This is on the idea that more pro-growth policies will be pursued if Republicans continue to hold majorities in Congress.
“This really just looks like a kind of rout to the Democratic Party, and then you have two more years of a Republican majority,” he said.
That would mean more spending, which is good for stocks, gold, and global growth, Button added.
Still, moves were dampened by relatively low volumes ahead of Tuesday’s Veterans Day holiday, when the US bond market will be closed and forex markets are likely to see a drop in activity.
“Trading volumes are relatively thin ahead of tomorrow’s holiday and most participants are avoiding big directional positions as they grapple with the uncertainties still swirling around the state of US fundamentals,” said Karl Schamotta, chief market strategist at Corpay in Toronto.
The dollar index was last down 0.14 percent at 99.59, and the greenback was flat against the euro at USD1.564. The dollar gained 0.44 percent to 154.07 Japanese yen.
The Aussie rose 0.57 percent to USD0.6528 against the US currency.
That Australian currency is sometimes used as a barometer of sentiment towards global growth, and often moves in line with equity markets, which were higher on Monday.
If the shutdown is lifted, the focus will shift to US economic data, particularly non-farm payrolls data, which has not been released since government operations ground to a halt more than a month ago.
Market pricing currently reflects a 67 percent chance of a Federal Reserve interest rate cut in December, although that pricing could shift sharply in either direction once the data comes through.
There were also domestic factors shaping both the yen and Aussie dollar.
Japanese Prime Minister Sanae Takaichi on Monday said she would work on setting a new fiscal target extending through several years to allow more flexible spending, essentially watering down the country’s commitment to fiscal consolidation.
Separately, the Bank of Japan’s summary of opinions on Monday also said that the “fog surrounding Japan’s economic outlook has begun to clear compared with July,” potentially paving the way for a rate hike in December, which would help support the currency.
In cryptocurrencies, bitcoin gained 0.53 percent to USD105,060.
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