Dollar gains as China's COVID curbs linger

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Dollar gains as China's COVID curbs linger

SINGAPORE - The dollar went up on Monday as sentiment soured after China said it is sticking to its strict COVID restrictions, quashing hopes of a possible reopening of the world's second largest economy, which had earlier fired a broad rally in riskier assets.

China has said over the weekend that it will continue its dynamic-clearing approach to COVID 19 cases as soon as they emerge, giving little indication that it will be able to ease its outlier zero-COVID strategy nearly three years into the epidemic.

The dollar rose by 0.9% on the Chinese offshore yuan to 7.237 in early Asia trade, while the risk-sensitive Australian and New Zealand dollars fell nearly 1%.

The Aussie was down 0.66% at $0.6427, while the kiwi fell 0.7% to $0.5887.

The two currencies were big beneficiaries of a broad rally on Friday - rising nearly 3% - as speculation that China could soon end its COVID restrictions gathered pace and buoyed risk appetite.

The sterling fell 0.42% to $1.1324, while the euro fell 0.3% to $0.9930, reversing their roughly 2% jump on Friday.

Carol Kong, a currency strategist at Commonwealth Bank of Australia, said any rally in the Aussie will likely prove short-lived, as China is still very committed to its approach to the COVID outbreaks.

Analysts were looking at Friday's U.S. jobs report, which showed firms added more than expected 261,000 jobs in October and hourly wages continued to rise, evidence of a still tight labor market.

The Federal Reserve could slow its pace of future rate increases and capped the dollar's gains due to hints of an easing of market conditions, with the unemployment rate rising to 3.7%.

The U.S. dollar index was 111.09 against a basket of currencies.

Kong said it was a pretty mixed report. Market participants were slowing down their expectations on the Fed funds rate because they focused on the lift in unemployment rate, and that may have led to the reversal of their expectations on the Fed funds rate, judging by market reaction. Four policymakers on Friday indicated that they would still consider a smaller interest rate hike at their next policy meeting.

The Fed funds futures show that markets are pricing in a 69% chance of a 50 basis-point rate hike at the Fed's December meeting, with the next key data point being Thursday's U.S. inflation figures.