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Thursday, February 2, 2023

Yuan, Commodity Currencies Slide as China Covid Protests Continue in Major Cities

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The yuan slumped, the Australian dollar led commodity currencies lower and the greenback strengthened against most major peers as protests in China against Covid curbs cast a shadow over risk sentiment in global markets.

Demonstrators gathered in the capital Beijing and the financial hub Shanghai.

Many held up blank pieces of paper to express their discontent and acknowledge the censorship. Some have, however, gone as far as calling for President Xi Jinping to step down.

Millions have been affected by nearly three years of mass testing, quarantines and snap lockdowns.

It is very unusual for people to publicly vent their anger at Communist Party leaders in China, where any direct government criticism can result in harsh penalties.

The police have largely allowed the rallies to continue, but in Shanghai officers arrested several people and cordoned off streets on Sunday.

The dramatic turn of events adds fresh uncertainties to the outlook for the world’s second-largest economy and its markets, just as some recent loosening of virus controls and sweeping property rescue efforts have helped Chinese stocks stage a remarkable rebound.

The protests, triggered by a deadly fire in an apartment block under lockdown in a western city, also threaten to further dilute a moderate, well-anticipated monetary easing step by China’s central bank Friday.

“Sentiment may take a hit as the protests fuel concern over social instability in China and foreign investors may trim exposure to Chinese investment,” said Ken Cheung, chief Asian FX strategist at Mizuho Bank Ltd. in Hong Kong. “It appears that the Zero Covid policy is reaching its tipping point. More easing or refinement on the Covid measures will be needed to curb discontent.”

The yuan will likely weaken while haven demand may boost the greenback, Cheung said.

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