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Potential end comes into sight for COVID-19 crisis but a difficult winter still lies ahead. The vaccine breakthrough reinforced risk asset rally with the AUD, NZD and CAD as the main beneficiaries.  Emerging market currencies also surged and the BRL is set to recover on further positive vaccine news, per MUFG Bank.

Key quotes

“The announcement from Pfizer that their COVID-19 vaccine is proving very effective at combating the disease has reinforced the rebound in risk assets following the US election. It has been no surprise that the high beta currencies of the Norwegian krone, New Zealand, Australian and Canadian dollars have been the main beneficiaries amongst G10 currencies. A similar dynamic has also played out amongst emerging market currencies as the Russian rouble, Indonesian rupiah, Mexican peso and South African rand have all outperformed.”

“While the vaccine results from Pfizer are only preliminary at this stage, they were described as ‘just extraordinary’ by Anthony Fauci the director of the National Institute of Allergy and Infectious Diseases as Pfizer’s preliminary results showed an effectiveness of more than 90%. He also noted that it has raised optimism that the results from Moderna’s vaccine could show similar effectiveness. The positive developments have increased the likelihood of a return to normality next year which should help to accelerate the global economic recovery.”

“Admittedly, there are still many uncertainties at this stage. According to vaccine experts, questions about production, distribution and, most importantly, the performance and capability of the shot itself still need to be answered including how long will it provide protection for and is it as effective for all age ranges. Nevertheless, it is still an important step forward to exit the COVID-19 crisis and provides a reminder not to bet against human ingenuity. 

“Further positive progress on vaccines will allow currencies which have been hit hard by the COVID-19 crisis to continue to rebound including the Brazilian real which has fallen by 25% against the US dollar so far this year.”