Yen rallies, rand and Aussie stumble as new variant spurs flight to safety

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OTTAWA — The safe-haven yen rallied while

the South African rand and risk-sensitive Australian dollar

slumped on Friday, as investors ducked for cover following the

discovery of a new coronavirus variant that could resist current

vaccines.

The yen leapt as much as 0.64% to 114.595 per

dollar, and fellow haven the Swiss franc rose as much

as 0.33% to 0.9330 per dollar after South African scientists

discovered the B.1.1.529 variant spreading in the country. The

variant has a cluster of mutations that may help it evade the

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body’s immune response and make it more transmissible. It has

since been found in Botswana and in Hong Kong.

The rand dropped 1.62% to a more than one-year

trough at 16.24 per dollar, while the Aussie and New

Zealand dollars slumped to three-month lows at $0.7135

and $0.6818, respectively.

“COVID worries are definitely playing a role in increasing

demand for safe havens including the yen, and because South

Africa is the location of this new variant, that’s an obvious

reason to avoid the rand,” said Shinichiro Kadota, senior FX

strategist at Barclays in Tokyo.

Britain has rushed to introduce travel restrictions on South

Africa and neighboring Botswana, Namibia, Zimbabwe, Lesotho and

Eswatini. Sterling slipped to a new 11-month low of

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$1.3299.

However, the euro rose 0.15% to $1.1222,

recovering after hitting its lowest in nearly 17 months earlier

in the week at $1.1186. Germany is considering following

Austria’s lead and reimposing a COVID-19 lockdown with the

continent once again the epicenter of the pandemic.

Gains for the yen, franc and euro pushed the dollar index

– which measures the greenback against those and three

other currencies – further away from Wednesday’s 96.938, its

highest in nearly 17 months. It last traded at 96.707

But the index remained up 0.72% on the week, still headed

for its fifth straight weekly advance.

Traders have ramped up bets that an increasingly hawkish

Federal Reserve will lift rates by the middle of next year,

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while central banks in Europe, Japan and elsewhere stick to more

dovish stances.

“If the COVID situation worsens, then dollar-yen could go

down further, but otherwise the monetary policy divergence is

definitely going to be weighing on the yen in the medium term,”

said Kadota, who predicts dollar-yen will strengthen to 116 and

beyond by the middle of next year.

On the flip side, 114 should provide a floor for the

currency pair in the near term, “unless the world really changes

for the worse,” he said.

Last week, Bank of Japan governor Haruhiko Kuroda reiterated

his commitment to massive monetary stimulus, adding that the

central bank stands ready to ramp it up further if necessary.

Overnight, minutes from the European Central Bank’s October

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meeting showed most policymakers leaning toward continued

stimulus and a cautious approach to any policy changes, despite

the pressure from heated inflation.

By contrast, money markets are pricing for a Fed rate hike

by July, with good odds it could come in June.

A potentially crucial signpost for U.S. policy direction is

due next Friday, with the release of monthly payrolls figures.

“Medium term, we continue to favor the USD,” Jane Foley,

senior FX strategist at Rabobank, wrote in a research note.

“However, with the market now long USD and short EUR and the

money market very aggressively positioned for Fed rate hikes

next year, there is scope for pullbacks in the currency pair,”

with $1.15 a potential target, and the payrolls report a

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potential trigger, she said.

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Currency bid prices at 0451 GMT

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Euro/Dollar $1.1222 $1.1206 +0.15% -8.15% +1.1227 +1.1206

Dollar/Yen 114.7150 115.3700 -0.62% +11.01% +115.3150 +114.6050

Euro/Yen

Dollar/Swiss 0.9328 0.9356 -0.28% +5.46% +0.9359 +0.9330

Sterling/Dollar 1.3305 1.3318 -0.08% -2.60% +1.3322 +1.3299

Dollar/Canadian 1.2712 1.2646 +0.55% -0.15% +1.2714 +1.2650

Aussie/Dollar 0.7141 0.7186 -0.61% -7.16% +0.7190 +0.7135

NZ 0.6825 0.6854 -0.36% -4.91% +0.6856 +0.6818

Dollar/Dollar

All spots

Tokyo spots

Europe spots

Volatilities

Tokyo Forex market info from BOJ

(Editing by Ana Nicolaci da Costa and Jacqueline Wong)