Euro nears 2-year high; Aussie, Kiwi up as risk appetite grows

NEW YORK: The euro strengthened to its highest in nearly two years against the dollar, while commodity currencies gained as risk-on moves continue in the wake of a fiscal stimulus deal reached by European Union leaders on Tuesday.

Currency traders largely shrugged off US-China tensions, although risk appetite in currency markets briefly diminished for about two hours, after the United States told China to close its consulate in Houston amid spying accusations, the latest example of worsening relations between the two countries.

The mood remained largely optimistic, however, following the EU's agreement on a 750 billion-euro recovery fund to share the debts incurred during the coronavirus crisis, with the euro up for a fourth straight day against the greenback.

"This is part of global reflation and maybe the multiyear bull market in the dollar has come to an end," said Axel Merk, president and chief investment officer at Merk Investments in Palo Alto, California.

In afternoon trading, the euro was last up 0.37% at $1.1569, after hitting $1.1601, the highest since October 2018.

After gaining on the US-China headlines, the dollar index resumed falling and was down 0.2% at 94.939. The index fell to a low of 94.827, its weakest since March.

"The dollar is weak and the key reason for that is real interest rates in the US are low and are promised to go lower," said Merk.

The US Federal Reserve is scheduled to hold a two-day policy meeting next week, in which it is expected to keep interest rates near zero as it seeks to support an economy battered by coronavirus lockdowns.

The United States reported more than 1,000 deaths from COVID-19 on Tuesday, according to a Reuters tally, the first time since June 10 the nation has surpassed that milestone. California was close to passing New York in total infections.

The Australian dollar was up 0.2% at US$0.71425 after earlier hitting a fresh 15-month high, while the New Zealand dollar was up 0.3% at US$0.6664, touching a six-month peak earlier in the session.

A flare-up of coronavirus cases and the reintroduction of lockdown measures in Australia's second-largest state had little impact on the currency, even after reports that the latest virus outbreak will cut the country's third-quarter GDP growth by 0.75 percentage point.

The Chinese offshore yuan, which weakened past 7 per dollar on US-China headlines, had recouped that level by afternoon trading, at 7.0119.

Sterling lost ground versus the dollar and euro, driven by a report in the Financial Times that the British government has abandoned hopes of clinching a free-trade deal with the United States by the end of the year and concerns the Brexit transition period will expire without a deal between Britain and the EU.