Dollar surges as companies scramble for liquidity

Japanese 10,000 yen and U.S. 100 dollar banknotes are arranged for a photograph in Tokyo, Japan, on Sept. 7, 2017.
Tomohiro Ohsumi | Bloomberg | Getty Images

The U.S. dollar surged on Tuesday as companies and investors sought out the most liquid currency as concerns about economic shutdowns from the coronavirus continued to dent risk appetite.

The Federal Reserve on Sunday slashed rates to zero and launched a new bond purchase program. Other central banks have taken similar measures but the moves have so far failed to stem liquidity strains and market panic.

Central banks have also cut pricing on their swap lines to make it easier to provide dollars to financial institutions around the world.

But funding markets show continued stress in sourcing the greenback.

Three-month euro/dollar cross-currency basis swap spreads rose as high as 120 basis points, up from less than 90 on Monday and putting the spread as its widest since late 2011 - the height of the euro zone debt crisis.

"Stress here is helping lift the USD," said Shaun Osborne, chief FX strategist at Scotiabank in Toronto.

The U.S. currency had initially fallen in early March as U.S. government bond yields tumbled, but the dollar has since rebounded, and measured against a basket of major currencies is now up around 5% since March 9.

The dollar index was last at 99.53, up 1.45% on the day.

Investors are looking for the Fed to support to the commercial paper market, which companies tap for short-term loans, and for governments to launch new fiscal stimulus to help offset an economic downturn.

President Donald Trump's administration and leading Republicans urged the Senate on Monday to swiftly back a House-passed coronavirus aid plan and seriously consider massive new economic stimulus legislation that was still under development.

Data on Tuesday showed that U.S. retail sales unexpectedly fell in February, with households cutting back on purchases of a range of products, and the coronavirus outbreak is expected to depress sales in the months ahead.

The euro dropped 1.63% to $1.10.

The dollar rallied 1% versus the yen to 106.91 yen.

The Australian dollar, which is sensitive to global growth due to the country's commodities exports, fell 1.70% to $0.6013, its weakest since 2003. It is down 10% since March 9.

The Reserve Bank of Australia has reiterated it stands ready to ease policy further in the face of the unprecedented spread of the coronavirus, adding to speculation about aggressive stimulus measures this week.