VOT Research Report
Market Analytics and Considerations
On Monday, the majority of Asian currencies declined as the dollar recovered as a result of aggressive remarks made by Federal Reserve officials. However, China’s yuan dominated increases among Asian currencies due to rising hope that some stringent anti-COVID policies may be relaxed.
The yuan reached its highest level in nearly two months, rising 1% to 7.0375 against the dollar. Additionally, the offshore yuan gained 0.8%.
In accordance with its stringent zero-COVID policy, China announced on Friday that some quarantine and movement restrictions would be relaxed for the first time. Given that Chinese authorities expressed some concern regarding slowing economic growth, the move fueled optimism regarding a further reduction in restrictions in the near future.
However, China is also dealing with its worst COVID-19 outbreak in six months, which has recently resulted in the reintroduction of lockdown measures in key economic centers. Authorities may be discouraged from reducing their anti-COVID efforts in the near future as a result of this.
Still, some policies were relaxed, which helped the yuan, which fell to 14-year lows in October amid growing signs of economic hardship in China.
The Taiwan dollar rose 0.3 percent on Monday, as did other currencies that are exposed to China.
However, after Federal Reserve Governor Christopher Waller cautioned that, despite the bank’s consideration of smaller rate hikes in the near future, it had no intention of softening its stance on inflation, broader Asian currencies were muted.
The remarks made by Waller assisted in the dollar’s recovery from recent losses. The dollar index gained 0.4 percent, while the dollar index futures gained 0.5 percent. However, the dollar remained near three-month lows.
After data revealed that U.S. inflation cooled more than anticipated in October, Asian markets rose, while the dollar fell last week.
However, considering that the level was still well over the Federal Reserve’s 2% yearly objective, the national bank is supposed to keep up with its hawkish position generally. The odds that the Fed will raise rates by 50 basis points less in December are estimated by the markets to be close to 81 percent.
After making huge gains last week, the majority of Asian currencies also saw some profit taking on Monday.
After rising 6.4% last week, the South Korean won fell nearly 1%, while the Japanese yen fell 0.5 percent but remained close to its highest level in two and a half months.
Oil prices pushed down the Indian rupee by 0.6 percent, while the Malaysian ringgit led gains across Southeast Asia with 0.8 percent.
The Australian dollar lost 0.4 percent, while the New Zealand dollar lost 0.2 percent, among the currencies of the Antipodes.
