SINGAPORE- The dollar pared some of its strong overnight gains on Tuesday after investors flocked to the safe-haven currency on nerves over China’s COVID flare ups, though cautious risk sentiment kept the greenback in demand.
The fresh bout of risk aversion had weighed particularly on the antipodean currencies – often used as liquid proxies for the Chinese yuan – with the Aussie sliding nearly 1 percent overnight. It last gained 0.12 percent to $0.6614.
The kiwi fell more than 0.8 percent and was last 0.15 percent higher at $0.6109.
China’s capital warned on Monday that it was facing its most severe test of the COVID-19 pandemic, with a surge in COVID cases sparking fresh restriction measures. Deaths from the virus were also recorded in Beijing for the first time since late May.
The offshore yuan traded 0.1 percent higher at 7.1665 per dollar in early Asia trade on Tuesday, after falling more than 0.7 percent overnight.
“The safe haven appeal of the US dollar is coming back into vogue as the concerns around China and the outbreaks from COVID are keeping markets nervous,” said Rodrigo Catril, a currency strategist at National Australia Bank (NAB).
The Japanese yen slumped more than 1 percent to the weaker side of 142 per dollar overnight and last traded 142.01.
“The curiosity is how Japan has also shown a great deal of sensitivity … if anything, the takeaway there is that Japan’s safe haven appeal is no longer there,” said NAB’s Catril, referring to the yen. “It’s more like a cork in the ocean, subject to risk aversion as well as movements in 10-year Treasury yields.”
US Treasury yields across most maturities inched higher overnight, as investors continued to re-price expectations for how high the Federal Reserve will hike rates as it attempts to bring inflation down from close to 40-year highs. – Reuters
