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CURRENCIES

US dollar slides as China shares soar

London

THE US dollar fell against most currencies on Thursday, as a rally in riskier assets such as global equities and commodities put a dent in safe-haven demand for the US currency.

China’s yuan rose to a four-month high against the US dollar, extending recent gains as investors of all stripes increased positions in Chinese stocks due to growing signs of a recovery in the world’s second-largest economy.

George Saravelos, currency analyst at Deutsche Bank, said in a note to clients that he expects the greenback to weaken further because of negative macro data surprises from the United States.

“The US election is of course another driver, and we have argued a Biden win would be negative for the dollar because policy would shift away from tariff policy and diplomacy by random tweet,” he said.

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The euro hovered close to the onemonth high of US$1.1371 it hit earlier in the day, even after German export data failed to meet analysts’ expectations. Analysts have noted a recent uptick in flows of exchange-graded funds (ETFs) coming from the US into European equities.

“We will be closely watching to see how inflows respond to the European Recovery Fund negotiations in coming weeks. An acceleration would be a very positive sign for the euro,” wrote Mr Saravelos.

The British pound rose 0.3 per cent to US$1.2652, a three-week high. The Chinese yuan soared to a fourmonth high of 6.9808 in the offshore market and was last up 0.2 per cent against the US dollar at 6.9830.

China’s currency has been a star performer as investors shrug off diplomatic tension between Washington and Beijing to focus on China’s improving economy and its attractive technology sector.

The yuan has risen around 2.3 per cent from a seven-month trough against the US dollar set on May 27. “We’ve seen a more generalised view back to riskier assets. The Chinese equity surge has been the poster child for risk-on move across the last few sessions,” said Jeremy Stretch, CIBC Capital Markets’ head of G10 FX strategy.

Chinese shares continued their recent rally, with the blue-chip CSI300 index soaring to a five-year high on Thursday.

“Our bias for the currency quarter is 2-3 per cent dollar depreciations, and we see no reason to change that,” Mr Stretch said, adding that the US currency should fall as the supply from the Federal Reserve rises. REUTERS

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