While Dollar and Yen staged notable rebound towards the end of week, they still ended as the worst performing ones. On the other hand, commodity currencies were the best performers despite paring some of the gains. Markets were lifted by optimism that the world is moving closer to lockdown exits in major countries. Also, thanks to the hard work of scientists, progress continued to be made on coronavirus vaccines.
Meanwhile, diplomatic tensions between China and some developed countries intensified after it took a bold step to tighten up the grip on Hong Kong. (Here is an explainer by New York Times, coverage by BBC and Australian Financial Review on what is happening). The move drew condemnation from US Department of State, and a rare, strongly worded joint statement by UK, Australia and Canada.

The development is seen as another big step towards general cold war between the US and China, with possible escalations in trade spat between Australia and China too. At the same time, risk of Hong Kong losing its special international status as trade and financial hub is rising, which could eventually limit China’s ability to raise capital in the stock and bond markets.

The US-China-Hong Kong situation would remain a theme to watch ahead. So far, the impacts were limited to China and Hong Kong stock markets only. But spillover could happen any time, in particular if Yuan unexpectedly lose a key support level against the greenback.

Source: www.actionforex.com