Currency Traders Renew Risk Demand as Draghi Aids Oil Exporters

  • Canadian dollar leads rally by Aussie, rand and krone
  • BOJ Governor Kuroda says Japan also has room to ease

Risk is back in vogue for foreign-exchange traders after European Central Bank President Mario Draghi’s hint of further monetary stimulus helped fuel a rally by currencies from commodity-exporting nations.

The Canadian dollar is gained for the first week in a month, while the Australian dollar and South African rand strengthened. The advances come as investors are again allocating capital to riskier assets that promise higher yields amid growing signs that last year’s wave of central-bank easing isn’t finished. The euro slumped a third day versus the dollar after Draghi said policy makers may consider adding to their stimulus policy when they next meet in March.

Five-day moves versus the dollar
Five-day moves versus the dollar

“The market is in a bit of a sugar rush and the high-yielding risk assets are outperforming,” said Peter Dragicevich, a foreign-exchange strategist at Commonwealth Bank of Australia in London. “It seems to just be in reaction to the dovishness of the ECB yesterday,” he said, adding that he expects the rally to fade as volatility surrounding China is likely to continue.

The Canadian dollar traded at C$1.4119 per dollar as of 5 p.m. in New York, adding 2.9 percent from a week earlier for its first gain since the period ending Dec. 25. Australia’s currency advanced more than 2 percent from a week earlier, while the rand added 1.9 percent and the Norwegian krone gained 1.1 percent.

The European shared currency slumped 0.7 percent Friday to $1.0796, while the yen lost 0.9 percent to 118.78 per dollar.

Oil Effect

Bank of Japan Governor Haruhiko Kuroda said during an interview with Bloomberg in Davos, Switzerland that policy makers in the nation are prepared to expand bond purchases if necessary. That -- combined with oil’s biggest two-day advance in more than seven years -- supported the currencies of crude producers.

Oil prices rose for a second day, advancing from near a 12-year low, and a Bloomberg gauge of commodity prices advanced. U.S. stocks rallied with equities in Europe and Asia as the central-bank comments calmed markets after several weeks of volatility.

Draghi said Thursday that he expects interest rates to “remain at present or lower levels for an extended period of time.” The Bank of Japan, which meets next week, has room to ease further should underlying inflation suffer, Kuroda said. The U.S. Federal Reserve gathers to discuss its monetary policy on Jan. 26-27.

“The Canadian dollar and Norwegian krone are up, helped by firmer oil prices,” Nick Bennenbroek, head of currency strategy at Wells Fargo & Co., in New York, said in a note. “Should the more constructive market mood persist we would anticipate further near-term gains in the risk-sensitive commodity and emerging currencies.”

Before it's here, it's on the Bloomberg Terminal. LEARN MORE