‘Teflon dollar’ tops virus haven list
NEW YORK: Currency traders seeking shelter as the spreading coronavirus roils financial markets just can’t get enough of the Teflon dollar.
The greenback has gained versus 30 major world currencies in the past month, coinciding with mounting concern over the outbreak’s economic impact. The yen and the Swiss franc, two other traditional haven currencies, have proved no match.
The dollar’s appreciation is confounding the year-end consensus that overseas economies were set to strengthen and lure cash from the US. The deadly illness has upended that narrative, and yield-hungry investors are also shunning negative rates in Asia and Europe. And with no end in sight for the outbreak, momentum appears to be in the greenback’s favour.
“US growth is more insulated from the virus-related demand hit to [Asia and Europe],” said Ed Al-Hussainy of the asset manager Columbia Threadneedle. Rate differentials also make “the dollar an exceptionally attractive safe-haven play”, he said.
With coronavirus worries rising, the senior interest rates and currency analyst said his firm had reduced exposure to emerging-market currencies and closed long positions in euro and sterling versus the dollar.
The dollar’s strength is a boon for international investors repatriating proceeds from American holdings, but it’s a potential drag for US companies with earnings abroad.
The greenback touched a 10-month high of ¥112.23 last Thursday amid worries that the ripple effects from the deadly illness could push Japan into recession. Makoto Noji, chief strategist for SMBC Nikko Securities in Tokyo, sees the yen potentially dropping towards 115, a level last seen in 2017, should US and Japanese growth continue to diverge.
For Momtchil Pojarliev, head of currencies at BNP Paribas Asset Management, the yen has cheapened enough. He bought some on Thursday in the view that it will regain haven appeal should the virus’s impact start showing up in economic data.
There are other oases: gold is at a seven-year high, 10-year US treasury yields are at a three-week low, the Swiss franc has weakened 1.8% this year and the yen is down 3.2%.
“The market is starting to better discern between the currencies/assets it wants to hold in this virus-nervous world,” said Alan Ruskin, chief international strategist at Deutsche Bank. “In FX-land, the US dollar is top.”