Commodity rally unleashes Aussie as sterling braces for Brexit without trade deal

The dollar headed for a fourth weekly loss in a row on Friday to languish in multi-year troughs against other majors, and sterling snapped a five-week winning streak after British and European leaders remained far apart on a post-Brexit trade deal. The greenback is pinned near a two-and-a-half year low against a basket of currencies as investors bet on better returns in other currencies as the pandemic recovery takes hold.

On Friday, commodity currencies led the charge. Surging iron ore prices lifted the Australian dollar to a two-and-a-half year high of $0.7572 and a weekly gain of 1.8%.

Australian dollar crosses also leapt to new peaks, with the Aussie at a one-and-a-half year high against the yen, a six-month peak on the euro, a three month top against the yuan and a three-week high on the kiwi.

The euro rose against the dollar to $1.2160 after the European Central Bank delivered no surprises on Thursday and regional leaders reached a compromise with Hungary and Poland over a pandemic aid package.

The common currency has soared 15% from three-year lows at the height of the March markets panic and has added nearly 2% in two weeks since finally breaking $1.20 after multiple attempts.

Sterling was an outlier ahead of a weekend of brinkmanship, as British and EU negotiators have been told they have until the end of Sunday to decide whether a trade deal is possible.

It has slipped 0.9% this week as British and European leaders have expressed doubts that they will be able to salvage a deal.

At $1.3309, it is still priced for a deal that averts tariffs and quotas being imposed on some $1 trillion in annual trade from January 1.

But options market moves show traders bracing for chaos, with one-week implied volatility at a new eight-month high and the premium of sterling puts to calls near its highest since April as investors pay up for downside protection.

Sterling has fallen three weeks in a row against the euro and was steady at 91.31 pence in Asia after falling on Thursday.

Commodity rally unleashes Aussie as sterling braces for Brexit without trade deal, Reuters, Dec 11