Risk-Sensitive FX Gain Ground On Waning Omicron Fear

The perception of risks associated with the new coronavirus variant remained the main driver of market sentiment, with early data reinforcing the view that the symptoms caused by Omicron could be less severe than initially feared. The expectation that patients infected with the new variant could require less medical intervention inspired risk-on flows across G10 FX space.

• Chief U.S. medical advisor Fauci pointed to "encouraging signals" on the severity of symptoms caused by the new variant, while expressing hope that border restrictions would be lifted "within a quite reasonable period of time." Separately, data from South Africa has not shown any upsurge in hospitalisations linked to the spread of Omicron.
• High-beta currencies drew support from a revival in risk sentiment. The AUD was comfortably the best performer in this space, as federal Treasurer Frydenberg signalled that the upcoming mid-year budget review will feature an upgrade to the government's 2022 growth forecast.
• Its Antipodean cousin NZD lost some altitude early on but managed to recoup those losses on the back of broader risk-on feel. AUD/NZD moved away from a two-week low and remained buoyant through the Asia-Pac session.
• Safe haven currencies fell out of favour, as better mood music left CHF and JPY bringing up the rear in the G10 basket. USD/JPY stabilised around the Y113.00 mark.
• The yuan strengthened a tad, even as speculation was rife that Beijing could deliver a fairly imminent cut to the RRR, in the wake of Friday's comments from Chinese Premier Li. The prospect of policy easing in China likely lent additional support to broader risk sentiment overnight.
• Monday brings a slow start to the week, with the global data docket providing little of real note. BoE's Broadbent and Riksbank's Skingsley are set to speak.