LONDON, March 17 — The US dollar’s rally gathered steam on Tuesday as nervous traders rushed to buy the most liquid currency, while the Australian dollar tumbled to a 17-year low amid growing panic about a coronavirus-induced economic slump.

Coordinated moves by central banks have failed to quell anxiety about the coronavirus pandemic, and financial markets are tumbling.

Investors are now waiting to see the scale of government fiscal responses to battle the economic fallout from the virus and limit the expected contraction.

The US currency had initially fallen in early March as US government bond yields tumbled, but the dollar has since rebounded, and measured against a basket of major currencies is now up around 5 per cent in eight days.

Funding pressures in the market for dollars are growing sharply as investors and companies rush to get their hands on the greenback.

"The biggest risk, and at the moment it’s our bearish scenario, is that this morphs into a systemic crisis,” said Guillermo Felices, a senior strategist and portfolio manager at BNP Paribas Asset Management.

Investors have taken central bank action as insufficient given the coronavirus’s breakneck spread across the world, which has put many nations into virtual lockdown and sparked warnings about a brutal global recession.

The US dollar index on Tuesday rose more than 1 per cent to as much as 99.421, its highest since February 24.

The euro dropped 1.6 per cent to US$1.10 and was headed for its biggest one-day loss since June 2018.

Sterling sank to its weakest since September, down 1.5 per cent at US$1.2085 at one point.

The dollar rallied 1 per cent versus the yen to ¥107, reversing much of Monday’s loss.

Aussie at 2003 lows

The Australian dollar, seen as sensitive to global growth due to the country’s commodities exports, fell 1.8 per cent to US$0.5992, its weakest since 2003.

The Aussie is now down 8 per cent so far in March.

The Reserve Bank of Australia has reiterated it stands ready to ease policy further in the face of the unprecedented spread of the coronavirus, adding to speculation about aggressive stimulus measures this week.

The New Zealand dollar sank 1.5 per cent to US$0.5953, near an 11-year low.

The Canadian dollar, which is exposed to the rapidly-sinking crude oil price, is at four-year lows and was down around 1 per cent on Tuesday at CUS$1.4160.

Volatility has doubled in forex markets in the space of a few weeks, but has been less pronounced than in equities and bonds. Analysts said that despite the poor liquidity and large moves, trading had been relatively orderly.

Not everyone thinks the US dollar’s rally will last.

"Fixing the plumbing has tended to be one of the things that central banks can do in a crisis,” said Kit Juckes, a strategist at Societe Generale. "So this period of renewed dollar strength, while likely to be sharp, is also likely to be short-lived.”

Investors have been dumping emerging market currencies and MSCI’s emerging market currency index dropped 0.5 per cent, its lowest since September 2018.

The Korean won hit its lowest since 2010. while the Russian rouble, Mexican peso and Indian rupee all fell again. — Reuters