US dollar slips as traders weigh China outlook

THE US dollar (USD) slipped on Thursday (Dec 29), reversing gains in the previous session, as initial optimism over China’s reopening fizzled.

The yen was last 0.6 per cent higher at 133.72 against the USD. This followed a 0.7 per cent fall on Wednesday, which saw the yen hit a one-week low of 134.50.

Other currencies also edged higher. The euro rose 0.3 per cent to US$1.064. It fell 0.3 per cent on Wednesday. Sterling rose 0.1 per cent to US$1.202, after slipping 0.1 per cent the previous day. It climbed as high as US$1.206 earlier in the session, but gave up some of its gains as the session progressed.

Analysts warned against reading too much into price moves amid low trading volumes as markets head into the new year.

Craig Erlam, markets analyst at currency platform Oanda, said: “We very much appear to be in drifting mode, awaiting the turn of the year, when traders return, and we can get the latest thoughts from policymakers and the most up-to-date data.”

Investors are weighing the impact of China’s rapid loosening of its strict Covid-19 rules. From Jan 8, the country will no longer require travellers to quarantine upon arrival.

However, the US, Japan, India and other countries said they will require Covid tests for travellers from China after the removal of the quarantine rule.

Mizuho Bank economics and strategy head Vishnu Varathan said: “Many countries adopting an additional layer of testing for travellers arriving from China reflect hobbled resumption of travel amid China’s outbreak.

“This might also fuel fears of new strains of Covid that could once again disrupt the global recovery.”

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Meanwhile, Moh Siong Sim, a currency strategist at the Bank of Singapore, said: “(In the) near term, there’s still the big question mark as to how soon can we get over this Covid resurgence.”

In the medium term, he said the growth outlook for China “can be steadier and less bumpy”, adding that “the rest of the world could benefit from that as well”.

Against a basket of currencies, the USD index fell 0.1 per cent to 104.26, having climbed 0.2 per cent in the previous session. The Australian dollar was last 0.3 per cent lower at US$0.672, while the New Zealand currency was roughly flat at US$0.631. The Chinese offshore yuan rose 0.3 per cent to 6.977 per USD. REUTERS