By Kevin Buckland

TOKYO (Reuters) – The Australian dollar hit its strongest level in a week on Wednesday amid a pick-up in risk appetite on signs Omicron may be less severe than other COVID-19 variants, but still vulnerable to existing vaccines.

The Aussie rose to $0.7124 for the first time since Dec. 1, and traded at 80.80 yen, not far from Tuesday’s one-week top at 80.93.

British drugmaker GSK said on Tuesday its antibody-based COVID-19 therapy with U.S. partner Vir Biotechnology is effective against all mutations of the new Omicron coronavirus variant.

Meanwhile, the Reserve Bank of Australia said Omicron was not expected to derail the country’s economic recovery.

Investors had already cheered comments from the weekend that cases in South Africa – where the Omicron strain was first identified – showed milder symptoms, with the top U.S. infectious disease official, Anthony Fauci, adding “it does not look like there’s a great degree of severity” so far.

For the week, Australia’s currency is up 1.71% against the greenback, setting up its best performance in three months. It has rallied 2.28% versus the yen, on track for its best week since mid-October.

“Markets continue to travel with a good deal of optimism that Omicron will not have the severity of prior variants in terms of health outcomes, even if it is more transmissible,” Ray Attrill, head of FX strategy at National Australia Bank, wrote in a client note.

That’s put risk asset markets in “ebullient mood,” lifting stocks, commodities, as well as riskier commodity-linked currencies including the Australian and Canadian dollars, he said.

The Canadian dollar traded at C$1.2645 per greenback, near the two-week high at C$1.2635 set overnight.

The Bank of Canada decides policy later on Wednesday, and while economists expect no change at that meeting, they forecast rate hikes as early as the middle of next year in a recent Reuters poll.

The British pound recovered a bit of composure, consolidating around the middle of this week’s trading range this week at $1.32415.

The euro edged 0.05% higher to $1.12735, after touching its lowest since Nov. 26 at $1.1228 in the previous session.

The dollar index, which measures the greenback against six major peers, was little changed at 96.269, treading water in the middle of its range over the past 2-1/2 weeks.

The JOLTS report on U.S. job openings due later Wednesday should provide further evidence of a tightening labour market, potentially adding fodder for bets on earlier Fed tightening, which could boost the dollar.

Money markets are currently fully priced for a quarter point rate increase by June.

(Reporting by Kevin Buckland; Editing by Sam Holmes)