With signs of Shanghai reopening, FOREX-Aussie rises, safe-haven dollar and yen ease

The safe-haven dollar and the yen fell on Thursday, while the Australian and New Zealand dollars rose, after signals that Shanghai’s coronavirus lockdown was being loosened, albeit sentiment remained fragile as global markets fell. Shanghai will enable more firms in some locations to resume normal operations from the beginning of June, according to an official, raising expectations for an end to the government’s crushing weeks-long zero-COVID policy. This helped to brighten the tone in a market that had been battered on Wednesday by rising fears that the Federal Reserve and other global central banks will stifle growth.

Despite the moves in foreign exchange markets, a 1.9% slide in Asian stocks was evidence that risk aversion was still front of mind, a day after a 4% drop for the S&P 500 and a 5% plunge for the Nasdaq, said Ray Attrill, head of the currency strategy at National Australia Bank. “Zero-COVID is here to stay, so to me the China outlook is no less grim today than it was yesterday,” he said.

The Aussie gained 0.8% to $0.7008, just above the psychologically important 70 cent level, getting additional support from a tick down in Australian unemployment to the lowest in almost half a century. Overnight, the currency had retreated 1.1% from a high of $0.7046. New Zealand’s kiwi bounced 0.6% to $0.6334, after losing 1.1% overnight from a top of $0.6370. Preeminent haven currency the yen slid, with the dollar adding 0.48% to 128.845 yen after a 0.86% tumble on Wednesday. The dollar index, which tracks the greenback against six major peers, edged 0.16% lower to 103.63, after a 0.55% jump overnight that ended a three-day losing streak.

“The macro backdrop that is supporting the dollar, either on relative interest rate grounds or on risk aversion, one or other of those forces is going to remain in play for the time being, so I don’t see a meaningful decline from these levels” in the dollar index, he said. Poor U.S. housing data on Wednesday added to slowdown concerns, and Fed Chair Jerome Powell had ratcheted up the hawkish rhetoric the previous day by saying the U.S. monetary authority would push interest rates as high as needed to stem a surge in inflation that he said threatened the foundation of the economy.

Powell’s stance “makes it hard to achieve a ‘soft landing’ for the U.S. economy given the long lags between changes in monetary policy and changes in inflation,” Joseph Capurso, a currency strategist at Commonwealth Bank of Australia in Sydney, wrote in a client note. “The darkening outlook for the U.S. economy supports the USD and safe-haven currencies.” The euro rebounded 0.38% to $1.0501 after Wednesday’s 0.84% slump. Sterling got some respite with a 0.37% gain to $1.23905, after dropping 1.2% overnight as a surge in U.K. inflation to a 40-year record fostered worries for a sharp economic slowdown.

News Summary:

• With signs of Shanghai reopening, FOREX-Aussie rises, safe-haven dollar and yen ease
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