The expectation of an eventual reopening in the second-largest economy in the world. Which had earlier sparked a wide surge in riskier assets, was dashed after China indicated it is sticking itself with severe COVID restrictions. The dollar Increases on Monday as confidence worsened.
Even though the COVID-19 outbreak has been going on for nearly three years. China indicated over the weekend that it would continue to use a “dynamic-clearing” policy to deal with cases as soon as they arise.
The risk-averse Australian & New Zealand dollar were also the greatest losers, both falling by about 1% in early Asia trade. While the dollar Increases 0.55% against the Chinese offshore yuan at 7.2141.
The Australian dollar last decreased by 0.7% to $0.6426, while the New Zealand dollar decreased by 0.6% to $0.5893.
The two currencies benefited greatly from a widespread rise on Friday. Surging roughly 3% as risk appetite increased and expectations that China may soon lift its COVID limitations gained momentum.
Alvin Tan, head of Asia FX strategy at RBC Capital Markets, said. “People are kind of expecting there’s going to be an eventual opening. But it’s not evident to me that there’s an impending reopening due, and I think it’s kind of premature.”
The trade data released on Monday. Which revealed that exports and imports unexpectedly dropped in October—the first simultaneous decline since May 2020—highlighted the economic effects of China’s zero-COVID policy once more.
The euro fell 0.1% to $0.9949, wiping out some of its approximately 2% increase from Friday. While sterling moved down 0.3% to $1.1340.
According to Carol Kong, a currency strategist at Commonwealth Bank of Australia, “Any rise in the Aussie, as well as the other currencies, would probably prove short-lived, since China is still highly dedicated to its response to the COVID outbreaks” (CBA).
The usd was higher 0.32% at 147.14 yen to the dollar.
Investors were also analysing Friday’s US jobs report. Which revealed that businesses added more positions than forecast (261,000) in October and that hourly wages increased, indicating a persistently tight labour market.
However, signs of some market relaxation, along with an increase in the jobless rate to 3.7%, fueled expectations that the long-awaited Fed turn might be on the radar, curbing the dollar Increases.
The recent reading of the US dollar index against a range of currencies was 111.02. At the conclusion of the previous week, this had lost almost 2%.
Overall, the assessment was “quite mixed,” according to Kong of CBA. According to the market’s response, investors were quite concerned by the increase in the unemployment rate. Which may have caused participants to lower their expectations for the Fed funds rate.
On Friday, four Federal Reserve members said they would still take into account a modest interest rate increase during their next meeting carried.
With Thursday’s US inflation data serving as the next important data point. Fed funds futures currently indicate that markets were price in a 69% probability of a 50 bps rate increase at the Fed’s December meeting.