SYDNEY: The dollar edged off last week's peaks against riskier currencies on Monday, as concerns about the Omicron variant seemed to ebb, though an expectation of inflation driving US interest rates higher kept the greenback firm against the euro.
Smarting from a big drop on Friday, the growth-sensitive Antipodeans attempted a bounce in Asia as the mood was helped by preliminary observations from South Africa suggesting Omicron patients had relatively mild symptoms.
The Aussie rose 0.3% to $0.7023, scraping itself up from a 13-month low. The kiwi rose 0.2% to $0.6756, also clambering from a 13-month low made on Friday.
Cryptocurrencies steadied after a weekend walloping and Bitcoin found support around $49,000.
The safe haven yen eased 0.1% to 113.00 per dollar with the cautiously brighter mood, though a bumpy ride ahead looms with trade sensitive to Omicron news and ahead of Friday's US inflation data.
"Omicron headlines are moving in the right direction, and the risk-off sentiment may ease off soon," said analysts at OCBC Bank in Singapore.
Fairly little is known about Omicron but early observations in South Africa suggest those infected suffer relatively minor symptoms compared with previous virus waves.
Anthony Fauci, the top US infectious disease official, told CNN: "Thus far it does not look like there's a great degree of severity to it."
The euro fell 0.2% to $1.1289 and sterling was steady at $1.3234. China's yuan held steady at 6.3700 per dollar, even after state media foreshadowed policy easing as investors reckoned China's trade surplus would keep the currency supported.
Inflation pressure
Omicron aside, the backdrop and weeks ahead provide plenty for traders to be nervous about - reflected in volatility gauges on the battered Aussie and kiwi hitting multi-month highs on Monday.
OCBC expects investors' focus to shift next to central bank meetings in Australia and Canada this week ahead of US inflation data on Friday that could settle the rates outlook in the United States. Next week the Federal Reserve, European Central Bank, Bank of England and Bank of Japan all meet.
A mixed US jobs report last week did little to shake market expectations of a more aggressive US tightening and the consumer price report due on Friday looms as another case for an early tapering and a stronger dollar.
The US dollar index began the week steady at 96.211, within range of November's 16-month peak of 96.938. The futures market is almost fully priced for a hike to 0.25% by May and 0.5% by November.
But longer-term rates have remained stubbornly low as investors wager an earlier start to hikes will mean slower economic growth and inflation over time and a lower peak for the funds rate - something analysts think might change.
"We expect the dollar to rise as markets price in more rate hikes," said Commonwealth Bank of Australia strategist Kim Mundy. "This week's November CPI data could trigger markets to price in a more aggressive tightening cycle."
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