The yuan was the best performer for the day, rising 0.9% to 6.9628- its strongest level against the dollar since mid-September
Most Asian currencies rose sharply on Monday as more Chinese cities relaxed some anti-COVID measures, while improving risk appetite and expectations of smaller rate hikes saw the dollar sink to an over five-month low.
The yuan was the best performer for the day, rising 0.9% to 6.9628- its strongest level against the dollar since mid-September. The offshore yuan also rose nearly 1%.
Several Chinese cities relaxed movement curbs and testing mandates over the weekend, drumming up hopes for a broader scaling back of the government’s strict zero-COVID policy.
Data on Monday showed Chinese business activity shrank for a third straight month in November.
China is still facing a record-high daily increase in COVID infections, which may see the government hesitate in scaling back all anti-COVID measures. Analysts said that infections will likely rise as the country relaxes curbs, which could fuel some near-term volatility in markets.
Still, the currencies of countries with high trade exposure to China all rallied on Monday. The South Korean won and the Singapore dollar surged 0.8% and 0.5%, respectively, while the Australian dollar jumped 0.9% despite data showing that local business conditions worsened in the third quarter.
Also benefiting Asian currencies, the U.S. dollar extended its declines into a fifth straight session, taking little support from data that showed the country’s labour market remained robust in November.
The dollar index and dollar futures sank 0.4% each, and traded at their weakest level since late-June, with investors sticking to the Federal Reserve’s forecast of smaller interest rate hikes in the coming months.
The central bank is expected to hike rates by a relatively smaller 50 basis points when it meets next week in its last meeting for 2022.
Dovish signals from the Fed helped several beaten down currencies stage a strong recovery in recent weeks. The Japanese yen traded around 134 on Monday- a near four-month high, after recovering over 13% from a 32-year low hit in October.
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