Dollar’s slump thrusts currency peers to brink of new highs

The Bloomberg Dollar Index is poised for a 2.7% drop this month, taking its decline since a March peak to 12%. China’s economic rebound and bets on a successful roll-out of vaccines are bringing key levels into play for currencies from the Aussie to the euro and the Canadian dollar.

“The dollar has come under pressure as risk sentiment stays buoyant — it started at the end of the US election, and was then powered further by the vaccine news,” said Alvin T. Tan, head of Asia FX Strategy at RBC Capital Markets in Hong Kong. “The weakness has further to run.”

Citigroup Inc. sees the dollar dropping as much as 20% in 2021 as vaccines become widely available, while Goldman Sachs Group Inc. favors shorting the currency against the Aussie and loonie. Record virus infections in the US and division over a new stimulus are also adding pressure on the world’s reserve currency.

Among the key levels that are approaching:

• The Australian dollar is nearing its year-to-date high of 74.14 US cents. If the commodity currency breaks that, the Aussie would reach its strongest levels since August 2018
• The euro is approaching a key psychological level of 1.20 against the dollar. If it also breaches 1.2011, the common currency would be at its highest since May 2018
• The Canadian dollar is closing on C$1.2929 against the dollar, a level that hasn’t been crossed since October 2018
• The pound rising past $1.3482 would put it at its strongest since December 2019
• In Asia, the risk-sensitive Korean won is on track to end November 2.8% higher against the dollar for its sixth-straight monthly decline. It’s approaching the key 1,100 psychological level — a milestone last seen in June 2018.

“With emergency benefits expiring at year-end, this means the US outlook will remain weak as 2021 gets under way,” wrote Win Thin, global head of currency strategy at Brown Brothers Harriman & Co. “This supports our long-standing call for continued dollar weakness.”