Asia FX slips, Chinese yuan surges on reopening optimism

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By Ambar Warrick

AiVIF.com-- China’s yuan led gains across Asian currencies on Monday amid growing optimism over the scaling back of some strict anti-COVID measures, while most other Asian currencies fell as the dollar steadied on hawkish comments from Federal Reserve officials.

The yuan jumped 1% to 7.0375 against the dollar, its strongest level in nearly two months. The offshore yuan also rose 0.8%.

China on Friday said it was loosening some quarantine and movement rules under its strict zero-COVID policy, the first time the country has ever relaxed measures related to the policy. The move fueled optimism over a further scaling back of restrictions in the near-term, given that Chinese authorities expressed some concern over slowing economic growth.

But China is also grappling with its worst COVID-19 outbreak in six months, which recently saw the imposition of renewed lockdown measures in major economic hubs. This is likely to dissuade authorities from scaling back anti-COVID measures in the near-term.

The loosening of some policies still came as a source of relief for the yuan, which plummeted to 14-year lows in October amid increasing signs of economic duress in China.

Other China-exposed currencies also strengthened on Monday, with the Taiwan dollar up 0.3%.

But broader Asian currencies were muted after Federal Reserve Governor Christopher Waller warned that while the bank was considering smaller rate hikes in the near-term, it had no intention of softening its stance on inflation.

Waller’s comments helped the dollar stabilize from recent losses. The dollar index rose 0.4%, while dollar index futures rose 0.5%. But the greenback still languished near three-month lows.

Asian markets rallied, while the dollar retreated last week after data showed U.S. inflation cooled more than expected in October.

But given that the level was still well above the Fed’s 2% annual target, the central bank is expected to largely maintain its hawkish stance. Markets are pricing in a nearly 81% chance that the Fed will hike rates by a smaller 50 basis points in December.

Most Asian currencies also saw a measure of profit taking on Monday after stellar gains last week.

The South Korean won sank nearly 1% after surging 6.4% last week, while the Japanese yen fell 0.5%, but hovered around its strongest level in 2-½ months.

The Indian rupee fell 0.6%, pressured by a jump in oil prices, while the Malaysian ringgit led gains across Southeast Asia with a 0.8% jump.

Among Antipodean currencies, the Australian dollar shed 0.4%, while the New Zealand dollar fell 0.2%.