New Covid Version Omicron Breaks into Strong Currencies, Here’s How the Market Reacts

Currency markets in Asia calmed down on Monday after the initial shock of the discovery of the Omicron coronavirus variant, with investors scrambling for cover last week, but analysts were still more volatile with little information about the new strain. was warned.

The risk-sensitive Australian dollar rose 0.37% to $0.7139, recovering after a 1% drop on Friday, falling to $0.71125 for the first time since August 20.

The Canadian dollar also rebounded, with the greenback slipping 0.57% to C$1.2726, from the previous session’s two-month high of C$1.2800.

The safe-haven yen, which was the biggest beneficiary of flight to quality, slipped 0.25% to 113.75 per dollar. The Japanese currency rose 2% at one point on Friday at 113.05.

The South African rand jumped 0.93% to 16.1,400 from Friday’s one-year low of 16.3675 per dollar.

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South Africa discovered the Omicron variant last week, and countries globally tighten border controls with mutations in the spike protein suggesting it could be resistant to current vaccines.

Despite the speed of the response, omicrons have been detected in locations including Australia, the UK, Canada, Germany and Hong Kong.

BioNTech said Friday that it may know within two weeks whether a vaccine developed with Pfizer needs to be reworked. “Until then, market volatility is likely to remain elevated,” Rodrigo Catril, a senior FX strategist at National Australia Bank, wrote in a client note. “Markets have been forced to re-evaluate the global growth outlook until we know more.”

“We expect currencies to be volatile this week,” said Joseph Caperso, a strategist at the Commonwealth Bank of Australia. “It won’t take too much negative news about Omicron to push AUD below $0.7000.”

President Joe Biden will give an update later on Monday about the US response to the new version. The US dollar index – which measures the currency against six major peers – traded at 96.204 after falling to a one-week low of 95.973 on Friday.

While the dollar stands to benefit from uncertainty due to its status as a safe haven, it bleaks the outlook for when the Federal Reserve – and other global central banks – might raise interest rates.

The euro, which jumped 0.98% on Friday as traders closed short positions, slipped 0.23% to $1.1290.

Sterling was trading near $1.3335, lower than Friday’s 11-month low of $1.3278.

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