Dollar rises, yuan slumps as China’s COVID unrest spooks markets

SINGAPORE, Nov 28 (Reuters) – The dollar rose on Monday as protests in China against the government’s anti-Covid policies sent investors away from riskier assets, handing the Chinese yuan to more than two-week low against safe haven greenback.

Protests erupted across China and spread to several cities after the apartment fire that killed 10 people in Urumqi in the far west of the country. Hundreds of protesters and police clashed in Shanghai on Sunday night.

Investors have been worried about how the government in Beijing will react to the wave of civil disobedience when the COVID cases are increasing.

“We’re really looking at the government’s response to what’s going on… the government’s response is so unpredictable, and obviously that just means de-risking,” said Chris Weston, head of research at Pepperstone.

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The offshore yuan fell to a more than two-week low in Asian trade, and was last roughly 0.4% lower at 7.2242 per dollar.

The Australian dollar, often used as a liquid proxy for the yuan, fell more than 1% to $0.6681. The kiwi fell 0.72% to $0.6202.

China’s strict COVID restrictions have taken a toll on its economy, and authorities have implemented various measures to revive growth. On Friday, the People’s Bank of China (PBOC), the nation’s central bank, said it would cut the reserve requirement ratio (RRR) for banks by 25 basis points (bps ), effective from 5 December.

“If the RRR cut is the only monetary policy tool the PBOC will implement, it may not lead to a significant increase in bank lending,” said Iris Pang, chief economist for Greater China at ING.

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“Companies are currently facing weaker retail sales from a higher number of COVID cases and falling housing prices from unfinished housing projects.”

Elsewhere in the currency market, the euro was down 0.5% at $1.0350, while sterling was down 0.26% at $1.2057.

The latest developments in China have put a pause on the decline of the US dollar, which has been declining over the past few weeks on the hope that the Federal Reserve will soon slow its pace of rate hikes – a view that was supported by the minutes of the November meeting released. the other week.

Against a basket of currencies, the US dollar index rose 0.07% to 106.41, off a recent three-month low of 105.30.

Fed Chairman Jerome Powell is due to speak about the outlook for the US economy and the labor market at a Brookings Institution event on Wednesday, which could provide further clues about the outlook. for US monetary policy.

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Market expectations of a less hawkish Fed helped the Japanese yen gain ground, said Moh Siong Sim, currency strategist at Bank of Singapore.

The yen rose about 0.5% to 138.40 per dollar.

“The market is thinking the Fed will come down to a 50 basis point rate hike and maybe go on hiatus next year, which could limit the upside in Treasury yields. -United States. And the dollar/yen is probably queuing up in that sort of way. of the idea.”

Reporting by Rae Wee; Editing by Shri Navaratnam and Editing by Simon Cameron-Moore

Our Standards: The Thomson Reuters Fiduciary Principles.

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