Risk currencies tumble as China vows to stick to Covid Zero

(Bloomberg) — Risk currencies tumbled early Monday as traders sought safe-haven assets after Chinese authorities vowed to stick to their strict Covid-Zero stance.

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The Australian dollar fell 1.1 percent, while the New Zealand dollar fell as much as 1.4 percent after some short-term investors liquidated long positions, according to an Asia-based forex trader. China’s offshore yuan fell 0.8 percent, while the greenback rose as traders sought safe-haven assets.

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

The drop comes after risk currencies rallied on Friday – with the Aussie rising the most in 11 years – on hopes that China is on the verge of easing its pandemic rules. That was defeated at the weekend when health officials pledged to “unwaveringly” stick to the plan.

An unverified social media post last week and a report that 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 policies could soon be loosened.

Read more: China markets poised for more volatility as Covid-Zero policy remains

(New Zealand dollar move updates in second paragraph.)

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