The offshore yuan surged the most on record. Again.
Just days after a swoon for the history books, USDCNH dove more than 2% (figure below) as traders continued to speculate on some manner of grand reopening in the world’s second largest economy.
Hopes for a relaxation of Xi Jinping’s “COVID zero” strategy, along with a smattering of other incrementally bullish headlines, helped drive Hong Kong shares to the best week in over a decade.
The yuan’s Friday rally came as the Nasdaq Golden Dragon index skyrocketed, taking this week’s advance to 15%.
Of course, the Chinese currency still sits near record lows against the dollar. This is hardly the first time markets have speculated on an end to China’s rolling lockdowns. Such hopes have never been rewarded with anything other than fleeting rallies. Maybe this time is different.
Meanwhile, the loonie soared after the Canadian jobs market posted a wholly anomalous tenfold beat to consensus for October, suggesting the Bank of Canada’s downshift might’ve been premature.
The dollar was sharply lower Friday, bolstering risk sentiment. The greenback retreated the most since March of 2020 (figure below), when every asset on the planet was subject to some of the largest daily swings ever recorded.
Any day when the dollar is on the back foot is a good day for other assets. The mirror image of this year’s cross-asset malaise is the torrent dollar rally.
Markets heard from two Fed officials Friday. Tom Barkin told CNBC he’s ready to slow the pace of rate hikes on the way to “a potentially higher point.”
“It is entirely conceivable [that] we would end up over 5%. But to me, that’s not a plan, that would be an output of our effort to try to keep inflation under control,” he said.
In prepared remarks for a Brookings virtual event, Susan Collins stuck largely to the statement language and hewed closely to Jerome Powell’s message from the press conference. “Policy has moved expeditiously into restrictive territory, but there is more work to do,” she said. “In this next phase for policymaking, my focus is shifting from raising rates rapidly to determining the level that the funds rate must reach to be sufficiently restrictive to achieve the desired outcomes.”
Still, Collins warned on the risks of over-tightening. On Wednesday, Powell emphasized that it’s “premature” to talk about pausing. Two days later, Collins said it’s “premature to signal how high rates should go.”
Fed non-pivot + relief rally for risk and duration = Fed non-pivot + disappointment sell off for risk and duration. Rinse and repeat.