US Dollar Gains Even as Traders Favor Commodity Currencies
Arslan Butt • 1 min read
The US dollar is on the recovery after a decline against commodity currencies even as markets turn optimistic about economic recovery raising the demand for crude oil, metals and other key commodities worldwide in the near future, once the coronavirus pandemic is brought under control. At the time of writing, the US dollar index DXY is trading around 92.23.
The greenback also weakened against its major rivals, the Euro and the GBP, but maintained its strength against other safe haven currencies like the CHF and the JPY on the back of an uptick in US Treasury yields. The possibility of more fiscal stimulus measures have been keeping treasury yields higher in recent sessions, which is lending some support to the reserve currency for now.
The US dollar is likely to enjoy support from an improvement in the country’s economic outlook, with recent data releases pointing to improving conditions. With the COVID-19 vaccine distribution program gathering steam and more stimulus initiatives expected soon, the US economy could post a faster recovery than most other countries around the world.
While this works in the dollar’s favor and supports a bullish sentiment against its major peers, hopes for overall global economic recovery have boosted the risk appetite in markets, sending investors away from the safety of the greenback and towards riskier instruments. The currencies that have gained the most from this sentiment are commodity currencies, especially the AUD and the NZD, as an improvement in economic conditions could boost global trade and industry, increasing the demand for commodities around the world.