The dollar was up on Monday morning in Asia, but holidays in many key Asia Pacific markets meant that it had a quiet start to 2022. The Japanese, Chinese, Australian, and New Zealand markets were all closed for a holiday, and the thin trade could make it more difficult to see the dollar’s real moves. The global spread of the omicron COVID-19 variant also continues to impact on sentiment. Although the number of cases in the western Chinese city of Xi’an edged down, Johns Hopkins University data showed that the global number of cases topped 290 million as of Jan. 3. Meanwhile, China Evergrande Group's Hong Kong shares were suspended from trading earlier in the day, with the property developer declining to provide a reason for the suspension. However, Chinese property developer Cifi Holdings offered to buy China Evergrande’s outstanding 5.5% bond due in 2022. The offer was $1,000.5 for each $1,000 in principal amount plus accrued and unpaid interest, according to Cifi Holdings’ statement to the Hong Kong stock exchange. The offer to buy the $505.1 million of notes that remain outstanding expires at 4pm London time on Jan. 7. Investors also await China’s Caixin manufacturing and service purchasing managers indexes, due later in the week.
Gold was down on Monday morning in Asia, but higher U.S. Treasury yields supported the safe-haven asset amid concerns about rising COVID-19 cases. Trade also remained thin as key Asia Pacific markets, including China, Japan, and Australia, were closed for a holiday. Meanwhile, rising COVID-19 cases are also on investors’ radars, with an average of over a million cases detected a day between Dec. 24 and 30, according to Reuters. Given the surging number of cases and adverse weather, more than 4,000 flights were canceled globally on Sunday, with over half of them U.S. flights. In Asia Pacific, gold discounts in India widened to the highest level in five months in the last week, thanks to COVID-19 linked restrictions and consumers in major Asian countries holding back on purchases in the runup to the year-end holidays. China Evergrande Group's Hong Kong shares were suspended from trading earlier in the day. The indebted developer did not provide a reason for the suspension.
The dollar index dipped on Friday in quiet holiday trading, but was set to end 2021 with a gain of nearly 7% as investors bet the U.S. Federal Reserve will raise rates earlier than most other major economies amid surging inflation driven by COVID-19 stimulus initiatives. Set for its best year since 2015, the dollar has been supported by an improving U.S. economy and persistent inflation that led to a hawkish turn by the Fed, which is now expected to begin raising interest rates as early as March. The best performer of the major currencies against the dollar in 2021 was the Canadian dollar, which was around flat for the year, helped by expectations the Bank of Canada will begin tightening its monetary policy as soon as January. The worst performer versus the greenback among the majors was the Japanese yen, which is down around 10% this year. The euro, which makes up the biggest weighting in the dollar index, was down a little more than 7% in 2021, with the European Central Bank (ECB) "sticking to ultra-dovish monetary policy settings while the Fed accelerates its taper and looks to hiking," analysts at Scotiabank said in a note to clients. The euro was down around 6% on the year versus sterling, as easing concerns in Britain about the economic impact of the pandemic boosted the British currency, with analysts expecting more rate rises from the Bank of England in 2022. While sterling was at its highest level against the euro since February 2020, it was down a little over 1% against the dollar for the year. The biggest laggard of the year by far, while not considered a major currency, was the Turkish lira, which was down around 44% against the dollar in its worst year in two decades, battered by soaring inflation and the Turkish government's unorthodox monetary policy.
Oil was up on Monday morning in Asia, as Libyan tightened supplies ahead of an Organization of the Petroleum Exporting Countries and allies (OPEC+) meeting. Concerns about falling fuel demand as COVID-19 continues to spread also capped gains for the black liquid. Workers are still attempting to fix a damaged pipeline in Libya, less than two weeks after militia shut down its biggest field. Both these factors are likely to drag output down to its lowest level in more than a year, with oil production expected to drop by another 200,000 barrels a day over the next week. Alongside the supply lost from the closure of its Sharara field, the country's overall output is expected to decrease to around 700,000 barrels a day. Meanwhile, OPEC+ will meet on Tuesday to discuss its production policy for February 2022. Some investors expect the cartel to stick to its plan to add another 400,000 barrels a day to global supply. COVID-19 also remains a concern, with China continuing to tackle its latest outbreak in the city of Xi’an and other countries also battling outbreaks fueled by the omicron variant of the virus. In the U.S., infection rates are likely to rise thanks to increased holiday travel, New Year celebrations, and school reopenings following winter breaks, which could lead to severe disruptions in the coming weeks.