Sunday, May 19, 2024

China-Linked Currencies Slide as Beijing Sticks With Covid Zero

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(Bloomberg) — Currencies with links to China slumped early Monday — paring strong gains seen Friday — after authorities there vowed to stick to their strict Covid-Zero stance.

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The Australian dollar dropped over 1% while the New Zealand dollar fell as much as 1.4% after short-term investors liquidated long positions, according to an Asia-based currency trader. China’s offshore yuan slipped 0.8% while the greenback climbed as traders sought haven assets.

“It tells us how sensitive the market is to the end of China’s zero-Covid policy,” said Jason Wong, a currency strategist at Bank of New Zealand. “Some in the market will take the view, where there’s smoke there’s fire, and want to believe that China will ultimately relent and it is likely to be a gradual process.”

The decline comes after the currencies surged on Friday — with the Aussie climbing the most in 11 years — amid hopes that China was on the brink of easing its pandemic rules. That was dashed at the weekend when health authorities vowed to “unswervingly” stick to the plan.

An unverified social media post last week, and a report authorities were working on plans to scrap a system that penalizes airlines for bringing virus cases into the country, boosted investor hopes that China’s pandemic policy may soon be loosened.

Read More: China Markets Set for More Volatility as Covid-Zero Policy Stays

(Updates currency moves in second paragraph.)

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