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Dollar Crawls Up Amidst the Covid Demos in China

by Didimax Team

The United States dollar index or it is also called as DXY crawled up about 0.3 percent to a range of 106.50s highs. That could be seem in Asian session trading on Monday (November 28/28). 

Market sentiment worsened as chaos and demonstrations against restrictions on public activity in China intensified. It was leading  traders to turn to safe haven assets such as the US dollar and Japanese yen. 

The Hang Seng Index and JCI also turned red. The Australian dollar, China's proxy among major pairs, plunged about 1.2 percent to a low level of 0.6665. 

The New Zealand dollar, pound sterling, along with other risk-sensitive currencies also fell together. It was based on several data released in the market. 



Demonstrations were Getting Bigger in China

Mass demonstrations expanded in several major cities in China at the weekend, including Urumqi, Chengdu, Guangzhou, Wuhan and Beijing. The goal was to protest the Zero COVID policy imposed by the Chinese government. 

The mass protest was sparked by a fire tragedy on Thursday. The video of the fire in Urumqi, Xinjiang, indicated allegations that lockdown policies had deterred firefighters.

It was leaving 10 people dead because of the tragedy. This kind of civil turmoil is very rare in China. Investors and traders were anxiously worried about the next development.

That is why;  they decided to release their panda country stocks. Negative sentiment also spread to other regions in Asia and Australia due to this situation. 

Government’s Response is Unpredictable 

The resistance from the citizens that we see now, is clearly an increase in tensions and protests. It is something people probably didn't expect to that degree.

That was said by Chris Weston, a Pepperstone's head of research. People look forward to the Chinese government's response to what's going on right now in that country.  

The government's response is unpredictable, and of course that means market participants are risk-averse. On Friday, China's central bank (PBoC) announced a cut in the minimum reserve requirements, effective on December 5. 

The measure is intended to guarantee banking liquidity and boost economic activity. However, the current situation degrades the effectiveness of that policy.

Companies are facing a weaker retail sale 

If the reserve requirement cut is the only monetary policy tool the PBoC will implement, it is unlikely to drive a significant rise in bank lending. This was said by ING's Iris Pang.

Companies are now facing much weaker retail sales due to higher COVID cases. They have to deal with falling housing prices due to unfinished residential development projects as well. 

Elsewhere, World oil prices were observed to weaken quite significantly in Asian trade on Monday (28/November). Brent oil is currently down by 2.85 percent from its daily opening level.

That commodity was moving in the range of $82.85 a barrel. Meanwhile, WTI sector slumped by 2.88 percent at $74.80 a barrel.

Crude Oil Priced are Weaken

Last weekend, hundreds of protesters in China staged a protest against the government's plan to re-impose strict restrictions to cope with a sharp spike in COVID cases. 

The protests had led to mass clashes with security forces and became the first major demonstration in Xi Jinping's government. The public is apparently already frustrated by the Zero-COVID policy.

That policy is continued to promote by Beijing ahead of the three years of the pandemic. Moreover, the deadly fire incident that only occurred Thursday last week further underscores the risks of the controversial policy.

Crude oil prices were observed to weaken, reflecting market concerns about the weakening outlook for oil demand from China. It was following planned strict COVID-19 restrictions.

The political uncertainty and protests that erupted in Shanghai are also the cause. This is what triggered the oil sell-off in early week trading.



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