Antipodeans battle to stem Omicron slide; cryptos lick weekend wounds

By Tom Westbrook

SYDNEY (Reuters) – Riskier currencies fought for a foothold on Monday against a dollar, buoyed by uncertainty around the Omicron variant and the expectation of more hot U.S. inflation data putting upward pressure on interest rates.

Cryptocurrencies nursed big losses from a wild weekend that at one stage crushed bitcoin more than 20%. Bitcoin found support around $49,000 on Monday.

Also smarting from a big drop, the Antipodeans led an attempted bounce in early Asia trade as the mood was helped by preliminary observations from South Africa suggesting Omicron patients had relatively mild symptoms.

The Aussie rose 0.3% to $0.7016, scraping itself up from a 13-month low. The kiwi rose 0.1% to $0.6750.

The safe haven yen also eased 0.1% on Monday to 113.00 per dollar with the cautiously brighter mood, though analysts expect a bumpy ride ahead with trade most likely sensitive to Omicron news and U.S. inflation data on Friday.

The euro was last stable at $1.1303 and sterling steadied at $1.3232.

“Perhaps we should be looking for volatility rather than a trend,” said analysts at ANZ Bank. Volatility gauges for the battered Aussie and kiwi on Friday hit their highest in about eight months as two currencies sank. [AUD/]

Fairly little is known about Omicron, now found in about 1/3 of U.S. states, with cases also detected in Europe, Asia and Southern Africa.

An article by the South African Medical Research Council based on early observations in Pretoria said the majority of COVID-19 patients had other reasons for admission and weren’t oxygen dependent – a better picture than previous virus waves.

Gyrations in the Treasury market have also unnerved traders in recent sessions as U.S. yield curve has flattened sharply on an expectation that the Federal Reserve moves soon to quell inflation and ends up curbing long-term growth.

A mixed U.S. jobs report last week did little to shake market expectations of a more aggressive tightening and the consumer price report due on Friday looms as another the case for an early tapering and gave support to the dollar.

The U.S. dollar index began the week steady at 96.211, within range of November’s 16-month peak of 96.938.

Interest rate futures markets have priced U.S. rates lifting off around the middle of next year, but only reaching as high as around 1.5% even as far out as late 2026 and traders are wary of that changing quickly.

“This is a tough one to reconcile,” said Chris Weston, head of research at broker Pepperstone. “It suggests the market sees the Fed stopping hiking after five hikes, well short of the Fed’s median forecasts.”

Weston said that a year-on-year inflation print above 7% – against economists’ expectations for 6.7% – could shake things up.

“Inflation with a 7 as the big number would get the USD higher,” he said.