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Commodity currencies wallow in oil gloom, dollar braces for election

Kitco News

LONDON (Reuters) - The main commodity currencies took another spill on Friday, capping what for some was set to be their worst week since the March COVID collapse, while volatility gauges climbed ahead of next week’s U.S. election.

With Brent already down 10% for the week and still on the slide, traders seemed ready to sell anything linked to crude.

Russia's rouble dropped 0.5% to near 80 per dollar RUBUTSTN=MCX on course for a 4% weekly drop. Norway's crown NOK= had managed to steady at 9.57 per dollar but only after a near 3.5% weekly skid, while Canada's dollar CAD= was facing its worst week since April.

The global tally of coronavirus cases rose by over 500,000 for the first time, France and Germany prepared to go back into almost complete lockdown and the United States notched a record 91,000 in new cases.

The dollar paused its climb on the euro meanwhile as the European single currency was crouched near a four-week low at $1.1679 EUR=EBS. The European Central Bank said on Thursday that it will ramp up its emergency money printing programmes in December.

“The oil currencies are really on edge because of a pretty ugly fall in crude,” said Saxo Bank’s head of FX strategy John Hardy.

“On the euro, you can peg it to the ECB - it is clear something big is coming in December - but the music is sounding very sour in the background with the coronavirus too,” Hardy said, adding there were questions over how much effective “medicine” the ECB has left.

The looming lockdowns and ominous rises in COVID cases meant the euro didn’t even budge when euro zone third quarter GDP data showed a stronger than expected 12.7% quarter-on-quarter bounce from the near 12% slump it saw between April and June.

France, Italy and Spain had looked particularly encouraging but consumer prices across the euro zone were still 0.3% lower year-on-year, as expected by economists polled by Reuters.

In the United States, September personal consumption and expenditure awaits later and the Chicago PMI.

ELECTION FEVER

The dollar index was fractionally lower at 93.859 =USD but within reach of Thursday's four-week high at 93.916, setting it up for the biggest weekly gains since the end of September.

Still, uncertainty surrounding Tuesday’s U.S. presidential election and coronavirus fears dominate.

FX volatility gauges for euro-dollar EURSWO=FN and most other major currencies are now at their highest since March. The risk-sensitive Aussie dollar AUD=D3 did though manage to claw to $0.7041, a fraction above a three-month low of $0.7002 marked overnight.

“We opened up pretty risk-adverse but now things seem to have settled down,” said Societe Generale’s Kit Juckes, though he also flagged another heavy tumble for Turkey’s lira <TRYTOM=D3=> where worries of a full-blown currency crisis remain.

If the next week’s election result is contested by either Donald Trump or Joe Biden, or the result divides the Senate and the House of representatives between the two parties, safe-haven currencies are almost certain to gain, Hardy added.

The greenback had edged lower against the Japanese yen to 104.30 yen JPY=EBS, after rallying overnight from a five-week trough as it benefited from a rebound in U.S. treasury yields and broad dollar buying.

“104 is a big level for dollar-yen,” Hardy said. “Over a particularly chaotic U.S. election scenario, it will be interesting to see what happens.”

Reporting by Marc Jones; Editing by Chizu Nomiyama

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