Morning Brief – US dollar sizzles on Tuesday

Improved risk-on trading sentiment was the main story during the Asian session due to improvements in China surrounding COVID-19 and the promise of financial support from the authorities in China.

On the back on the news today the Chinese yuan currency has seen renewed demand and currently trades at its highest level against the US dollar.

Additionally, risk-on currencies such as the Australian dollar and New Zealand dollar popped higher. In Australia specific news, China said it may ease its ban on Australian coal.

Finance Minister Liu Kun in an interview with China’s official Xinhua News Agency said that “the government has to enhance transfer payments to less developed areas as well as increase fiscal spending and investment in more regions using the proceeds from issuance of special government bonds.”

Minister Liu Kun also said the Chinese government “will prevent systemic risks from government debt” and also that “risks are controllable” within China.

The People’s Bank of China’s branch in Guangzhou has recently guided financial institutions under its supervision to provide offshore financing to quality property developers.

Quoting the branch they said that they “backed a domestic guarantee involving over 2.8 billion yuan of funding.” A resurgence in subway use is also being reported today.

The increased usage in significant Chinese cities suggests that the “exit wave” of Covid infections may have crested in several urban areas. Among the 11 cities reporting so are Shanghai, Guangzhou, Shenzhen, and Nanjing. All say they are seeing a rebound in trips over the last week.

Some of the major investment banks have given commentary on the measures. Citibank has said “The People’s Bank of China (PBOC) may remain accommodative in the early stage of reopening but gradually turn mindful of inflation risks afterwards.”

Citi analysts also said in a note. “The return of China’s growth story is likely to keep its interest rates and stock earnings up and support the RMB.”

ANZ bank Khoon Goh, head of Asia research said, “The Chinese yuan has tended to strengthen from the beginning of the year leading into the Lunar New Year holidays.”