The yuan on Monday recorded its best day against the dollar since December as investors lapped up risky assets on growing expectations of a strong Chinese economic rebound and as glimmers of good news in U.S. data drove down demand for the safe-haven dollar.
An index of blue-chip Chinese shares soared to its highest in five years as traders bet on a revival in China, pushing the offshore yuan CNH= to its highest level since March 17, its best daily performance since Dec. 12. It was last at 7.015 yuan per dollar.
“Clearly we have an improvement in global risk appetite. And I would pin the blame for that on Chinese regulators who appear to have encouraged the national team in the markets, and really helped to drive a big spike in equity indices,” said Karl Schamotta, chief market strategist at Cambridge Global Payments.
“What that signals to markets is that, although we’re not seeing a 2009-style stimulus effort in China, at least not from a monetary policy perspective – we are seeing signs of a concerted rescue effort.”
Green shoots in U.S. data also weakened demand for the safe-haven dollar. Against a basket of six rival currencies, it was last down 0.43% at 96.76, having earlier hit its lowest since June 24.
U.S. services industry activity rebounded sharply in June, almost returning to its pre-COVID-19 pandemic levels. A resurgence in coronavirus cases, however, has forced some restaurants and bars to close again, threatening the emerging recovery.
The multi-day move lower in the dollar index triggered a significant technical event called a death cross – in which the dollar index’s 50-day moving average crossed below its 200-day moving average – indicating the potential for a sell-off.
The pattern has been followed by a period of dollar weakness in eight out of nine instances since 1980, analysts at Bank of America said.
“It signals that you’re seeing positive sentiment taking hold… on the back of a more positive view of the global economy,” said Charles Tomes, portfolio manager at Manulife Investment Management.