Dollar rises as China defends stringent COVID policy, dampening risk sentiment

The dollar firmed on Monday as sentiment soured after China said it is sticking with its strict COVID restrictions, quashing hopes of an imminent reopening in the world’s second-largest economy which had earlier fired a broad rally in riskier assets, Reuters reported.
China said over the weekend that it will persevere with its “dynamic-clearing” approach to COVID-19 cases as soon as they emerge, giving little indication it would ease its outlier zero-COVID strategy nearly three years into the pandemic.
The dollar gained 0.55% on the Chinese offshore yuan CNH=D3 to 7.2141, while the risk-sensitive Australian and New Zealand dollars were also among the biggest losers, both falling nearly 1% in early Asia trade.
The Aussie AUD=D3 was last down 0.7% at $0.6426, while the kiwi NZD=D3 fell 0.6% to $0.5893.
The two currencies were huge beneficiaries of a broad rally on Friday – rising nearly 3% – as speculation that China could soon end its COVID restrictions gathered pace and buoyed risk appetite.
“People are kind of thinking there’s going to be an eventual opening … but it’s not obvious to me that there’s an imminent reopening due, and I think it’s kind of premature,” said Alvin Tan, head of Asia FX strategy at RBC Capital Markets.
The economic impact of China’s zero-COVID policy was again highlighted in trade figures released on Monday, which showed exports and imports unexpectedly contracted in October, the first simultaneous slump since May 2020.
Elsewhere, sterling GBP=D3 edged 0.3% lower to $1.1340, while the euro EUR=EBS slipped 0.1% to $0.9949, erasing some of their roughly 2% jump on Friday.
“Any rally in the Aussie, as well as the other currencies, will likely prove short-lived, given China is still very committed to its approach to the COVID outbreaks,” said Carol Kong, a currency strategist at Commonwealth Bank of Australia (CBA).
Against the Japanese yen JPY=EBS, the dollar was up 0.32% at 147.14.