U.S. Dollar Weakened as the Chinese Yuan Soared. Why’s that?


The U.S. dollar weakened slightly on Monday, though it’s still clinging to the top of its most recent trading range. Investors’ worries about rising coronavirus cases and the looming U.S. election, along with fading prospects of any fiscal stimulus before the election, supports the greenback. The dollar index tumbled down by 0.3% at 93.40 against a basket of currencies.


Meanwhile, the Euro/dollar pair soared by 0.3% at $1.1758 EUR=EBS. The dollar/yen pair remained steady at 105.33 JPY=EBS. Furthermore, the British pound increased by 0.4% against the euro to 90.41 pence on hopes the stalemate in Brexit talks can be broken. Against the dollar, sterling rose by 0.6% at $1.30 GBP=D3.


Asia’s trade-exposed currencies were steady on Monday after data showed China’s economic recovery from the pandemic accelerated in the third quarter. The Chinese Yuan surged forward to a fresh 1-1/2-year high versus the U.S. dollar.


According to reports, China’s gross domestic product increased by 4.9% in July-September from a year earlier. While the growth was slower than analysts’ forecast, it was still faster than the second quarter.


The Yuan lowered from session highs along with the Australian and New Zealand dollars after the Chinese GDP headline miss. However, the currencies soon rebounded on the view that consumption data from China forecasted better growth in the current quarter.


The Yuan reached a high of 6.6737 against the U.S. dollar in the offshore market CNH=EBS. It reached its strongest point since March 2019. It traded higher by 0.4% at last. Hopes of Joe Biden winning in the U.S. presidential election benefited the currency in the last few months, as Biden is seen as less of a threat to U.S.-China relations.


What about other currencies?


The Nordic currencies soared due to a risk-off mood, with the Norwegian crown leading the way. It rallied by 0.8% versus the U.S. dollar at 9.3025 NOK=D3 and by 0.5% against the euro at 10.9345 EURNOK=D3. Higher oil prices could also have helped the currency.


The general risk-on environment is pushing money into the commodity currencies – stated Marshal Gittler, the head of research at BDSwiss Group.  


The Australian dollar also climbed up by 0.5% at $0.7114 AUD=D3. Meanwhile, the New Zealand dollar jumped by 0.6% to $0.6642 NZD=D3.


On Saturday, the New Zealand Prime Minister Jacinda Ardern won re-election. Thus, delivering the biggest election victory for her center-left Labour Party in the last fifty years.


According to Gittler, the fact that the Labour Party won a majority in the parliament in New Zealand is good for the Kiwi because it reduces uncertainty in the country.


Lee Hardman, the currency analyst at MUFG, thinks that other Asian and commodity-related currencies should continue to benefit as the spread of coronavirus in Asia is more contained than in the rest of the world.

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