The U.S. dollar plummeted on Tuesday after rallying briefly due to concerns over surging coronavirus cases in China. The currency dropped by 0.4% to 106.19. Meanwhile, the offshore yuan jumped by 1% to 7.1777 per USD. The onshore yuan also added 1% at 7.1732 per greenback.
At the same time, the riskier Australian dollar soared by 1.35% to $0.6743. The kiwi climbed by 1.4%, exchanging hands at $0.6248. The Chinese government decided to speed up coronavirus vaccinations for elderly people. The authorities hope that the vaccinations with help to decrease the new infection cases. If that happens, they will be able to ease zero-COVID curbs. This news bolstered the yuan but weakened the safe-haven greenback against major currencies.
Alvin Tan, the head of Asia FX strategy at RBC Capital Markets, noted that investors are getting excited about reopening as it will strengthen the economy. On Monday, police stopped and searched people in Shanghai and Beijing at the sites of protests. On the weekend, citizens protested the country’s strict zero-COVID policy in several cities.
Furthermore, the Euro and British Pound soared today against the declining dollar. The common currency gained 0.34%, trading at $1.0375, near its five-month high of $1.0497 hit on Monday. Meantime, the sterling added 0.5% to $1.2017. The Japanese yen also skyrocketed by 0.7% at 137.98 per USD on Tuesday.
Investors are waiting for the euro area’s inflation data. The latter is due on Wednesday. Recent reports showed inflation in Germany, and Spain lowered, with numbers coming in below expectations.
According to European Central Bank President Christine Lagarde, the euro area’s inflation had not peaked yet. If it soars higher, the ECB might announce a series of new interest rate hikes in the coming months.
What do the analysts think?
Economists agree that there is a small chance for eurozone inflation to hit high, as there are signs that it’s slowing – noted Francesco Pesole, the FX strategist at ING. He also added that it’s difficult to see this significantly altering the European Central Bank’s policy. However, an above-consensus print may incentivize markets to consider a 75-basis point increase in December.
The U.S. Federal Reserve also remains hawkish thus far. St. Louis Fed President James Bullard stated that the agency needed to increase interest rates a bit further. In addition, Richmond Fed President Thomas Barkin and New York Fed President John Williams claimed the same.
Traders are now waiting for comments from Fed Chair Jerome Powell. He is due to speak on Wednesday, while key U.S. jobs data for November will come out on Friday. Analysts widely expect the central bank to raise rates by 50 basis points at its December meeting.
How are the EM currencies faring?
Most Asian emerging markets traded in the green today. The Singapore dollar and South Korean won gained the most among the EM currencies. The Singapore dollar and Thailand’s baht each added 0.4% during this session. But the South Korean won rallied by 1%.
The Chinese stocks also jumped by 2.1% as protests became subdued. Analysts at IG noted that tighter security in the country has aided in refraining large-scale unrest from materializing. If protests don’t escalate further, that will aid in bringing some calm to turbulent markets.
Meanwhile, Malaysia’s ringgit tumbled by 0.6% today. The currency was set for its biggest percentage drop since April 25. Uncertainties around the country’s political footing caused investors to move on safer bets. Malaysia chose a new leader last week. The ringgit gained 1.5% on the news at first, but overall, it shaved off more than 7% thus far this year.
On Tuesday, stocks jumped by 0.9% in Singapore, soaring for the first time in five days. According to last week’s data, the nation’s economic growth slowed more than markets anticipated.
Analysts at DBS Group Research stated that growth could potentially tumble below 2% YoY in the fourth quarter. There is also a risk of another sequential decrease due to struggles in the manufacturing sector. They also added that economic growth momentum would likely slow further in the coming year.
Some EM stock indexes have rallied today, though. Shares in South Korea, Singapore, and Thailand surged forward, gaining between 0.5% and 1%. On the other hand, markets in Malaysia, Indonesia, and the Philippines plummeted between 0.1% and 1%.