FOREX-Currency markets turn "risk on"; Aussie crosses $0.8 for first time in 3 years

* U.S. dollar at three-year lows vs Aussie dollar
* Euro-dollar crosses $1.22
* Graphic: World FX rates https://tmsnrt.rs/2RBWI5E

(Updates prices, adds commentary)
By Elizabeth Howcroft
LONDON, Feb 25 (Reuters) - The dollar index dropped on
Thursday, risk currencies rose to three-year highs and the euro
continued its surge against the Swiss franc, as currency markets
were boosted by dovish signals from the U.S. Federal Reserve.
Easy financial conditions, the promise of fiscal stimulus
and accelerating COVID-19 vaccine rollouts have driven money
into what is known as the reflation trade, referring to bets on
an upswing in economic activity and prices.
Fed Chair Jerome Powell reiterated on Wednesday that the
central bank would not tighten its policy until the economy
improves. As world shares rose, the dollar weakened, and was down 0.3%
against a basket of currencies at 89.754 at 1222 GMT =USD .
The Australian dollar rose against the U.S. dollar, crossing
$0.8 for the first time in three years AUD=D3 .
The Canadian dollar also hit new 3-year highs against the
U.S. dollar, up 0.3% at 1.2481 at 1224 GMT CAD=D3 .
"It's a bit of a double push for Australian dollar and
Canadian dollar, because on the one hand the reflation trade can
benefit commodity currencies because commodity prices go up… but
they also tend to benefit because of dollar weakness when stock
markets come back in as well," said Neil Jones, head of FX sales
for financial institutions at Mizuho.
Oil prices have rallied around 30% since the start of the
year, taking the commodity-linked Norwegian crown to its
strongest since 2018 against the dollar NOK=D3 . OUTLOOK
"The improving global growth outlook continues to be
supported by loose monetary and fiscal policies," wrote Lee
Hardman, currency analyst at MUFG in a note to clients.
"For now we continue to see the current trading environment
as remaining supportive for commodity-related currency strength,
and recommended a long AUD/USD trade."
The euro touched its highest in over a month versus the
dollar. At 1226 GMT, it was up 0.5% on the day at $1.2233
EUR=EBS .
Euro-Swiss franc has surged this week, as investors quit the
safe-haven franc. The euro is in its eight consecutive session
of gains versus the franc and has had its strongest week in
percentage change terms since June 2020.
At 1227 GMT, the euro was up around 0.5% versus the franc,
at 1.1085 EURCHF=EBS .
"This is a big vote of confidence in the global recovery,
and we see EUR/CHF on track to meet our year-end forecast at
1.15," ING global head of markets Chris Turner wrote in a note
to clients on Wednesday.
Reuters polls found that market participants expect the bull
run in global stocks, fuelled by cheap liquidity and reflation
hopes, to continue for at least another six months. "The overall longer trend is still for higher – for dollar
weakness and higher asset prices overall," Mizuho's Jones said.
Bitcoin was steady around the $50,000 mark, having recovered
some of its losses from the start of the week BTC=BTSP .

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