U.S. Dollar and Other Currencies were Mostly Steady Tuesday

The U.S. dollar traded near a one-month high on Tuesday. Traders were on edge over the result of the U.S. elections. Instead of betting outright on a particular outcome, many have turned to the safety of  the greenback. As a result, they are well-positioned to take advantage of volatility when the election’s results arrive.

The dollar stood at 94.050 against a basket of currencies. The safe-harbor Japanese yen has also traded higher in recent weeks. It was steady at 104.75 yen per dollar early on Tuesday in Asia trade.

The risk-sensitive Aussie changed hands at $0.7054 ahead of an important central bank policy meeting. Markets expect the bank to announce a rate cut, as well as a shift to quantitative easing.

Stuart Oakley, the London-based executive at Nomura, noted that traders pared back a lot of their positions. He thinks it’s a bit reckless to position themselves for one outcome of the election. They have positioned themselves to trade the post-election volatility.

According to opinion polls, the Democratic opponent Joe Biden is leading President Donald Trump. However, analysts think a Biden win could weaken the greenback as he intends to spend a large amount on the stimulus. Meanwhile, a steadier foreign policy could boost trade-exposed currencies.

Still, with the prospect of either a Donald Trump victory or an inconclusive result likely to support the U.S. currency, moves on Tuesday were subdued.

How did the New Zealand dollar and other currencies fare?

The New Zealand dollar was steady at $0.6630. The kiwi recovered from a Monday low along with the Aussie. On the other hand, the euro remained just above a one-month trough at $1.1639. The sterling traded below $1.30 as well.

One-week implied volatility for the yen and euro were both above 11%, the highest level since the beginning of April. Furthermore, one-week implied volatility for the Chinese yuan was over 12%, but it remained slightly below Monday’s five-year peak.

Commonwealth Bank of Australia currency analyst Kim Mundy stated that the risk of a period of heightened currency volatility seems to be more certain. Polls give opposing signals on election day, increasing currency volatility during tomorrow’s Asia session.

However, results are not due until the middle of Asia’s trading day on Wednesday. Meanwhile, traders are also closely watching the Reserve Bank of Australia’s policy decision.

According to NAB head of foreign exchange strategy Ray Attrill, the RBA may need to convince the market they are prepared to buy at least A$150 billion worth of bonds. That could justify the yield declines already seen throughout October.