US dollar jumps as China Covid worries spur safe-haven buying

THE US dollar rallied against major currencies on Monday (Nov 21), as rising Covid-19 cases in China led to new restrictions there and weighed on global investor sentiment.

China is battling numerous coronavirus flare ups. Two deaths were reported in Beijing on Sunday, and the city’s most populous district urged residents to stay at home on Monday.

The new cases have cast doubt on hopes that the government could soon ease its tough restrictions. That has boosted the dollar, which is seen as a safe haven in times of stress.

The dollar rose 0.98 per cent against Japan’s yen to US141.75, its highest since Nov 11. Meanwhile, the euro dropped 0.83 per cent against the greenback to US$1.024.

“The outlook for China’s zero-Covid market will remain a key source of volatility,” said Carol Kong, a currency strategist at Commonwealth Bank of Australia.

“If we do see another set of step up in restrictions, it indicates to me that the Chinese officials are still wary of any eventual reopening.”

The greenback was also rebounding somewhat after a sharp fall in recent weeks, analysts said.

“I look at the dollar’s rally this morning as a reflection of recent weakness, rather than as a sign that anything is changing,” said Kit Juckes, chief FX strategist at Societe Generale.

The dollar index, which tracks the currency against major peers, has slid more than 6 per cent from a 20-year high in October. A fall in the US inflation rate last month has driven bets that the US Federal Reserve will slow down its interest rate hikes.

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However, the index remained around 12 per cent higher for the year on Monday. The Fed’s aggressive raising of interest rates has pushed up bond yields in 2022, sucking money back towards dollar-denominated fixed income assets.

China’s onshore yuan opened at 7.1451 per dollar and weakened to a low of 7.1708, the softest level since Nov 11.

The People’s Daily, a mouthpiece of the Chinese Communist Party, on Monday published an article reiterating the need to catch infections early but avoid taking a “one-size-fits-all” approach.

Investors will be keenly interested in minutes from the Fed’s November meeting, due to be released on Wednesday, for any hints about the outlook for interest rates.

“(The) Fed has been pushing back against the dovish narrative the market has had after the October inflation data,” said Moh Siong Sim, currency strategist at Bank of Singapore.

Elsewhere, cryptocurrencies remained under pressure, with bitcoin down 1.1 per cent to US$16,078. FTX owes its 50 biggest creditors nearly US$3.1 billion, according to bankruptcy filings, as the collapsed crypto exchange undertakes a strategic review of its global assets.

Sterling was last trading at US$1.182, down 0.58 per cent on the day.

The Australian dollar dropped 0.79 per cent versus the greenback to US$0.662, while the kiwi was down 0.53 per cent at US$0.612. REUTERS