Chinese Yuan fell on Wednesday. Market is in a risk-off mood

The Chinese Yuan collapsed to its lowest point in almost nine months as tensions escalated in Hong Kong. In onshore trading, the Chinese currency declined to 7.1595 per dollar.

A seasonal rise in Chinese corporate demand for the greenback also influenced the Yuan, further exacerbating its fall. Chinese companies listed in Hong Kong bought the U.S. dollar to make dividend payments to their overseas investors.

The Australian dollar also plummeted down to $0.6642, and the New Zealand dollar slid to $0.6195. Traders worried about U.S.-China tensions and moved on safe-haven currencies. As a result, riskier assets declined after a recent short rally.

Meanwhile, the Japanese Yen jumped up against the euro and the antipodean currencies due to rising safe-haven demand. The greenback traded in a narrow range, at 107.53 yen.

On Wednesday, financial markets fluctuated between optimism and pessimism regarding the global outlook. Some investors fear that the threat of U.S. sanctions against China for its treatment of Hong Kong may yet again worsen risk sentiment. Others believe that the economy will recover quickly, with a resumption of business activity as the coronavirus pandemic weakens.

The markets are in a broad risk-on trend currently, and the only thing that can change this is the U.S.-China relationship – as stated by Junichi Ishikawa, the senior FX strategist at IG Securities in Tokyo. He also added that more problems between these two countries would slow the dollar’s recent decline. It can also potentially lead investors to buy the U.S. dollar as a safe-haven asset.

How did the U.S. dollar fare?

The greenback edged up on Wednesday after lowering recently. Renewed protests in Hong Kong and worries about the U.S. response to China’s proposed security law increased safe-haven demand for the dollar.

The U.S. currency traded at $1.0958 per euro. It also soared to $1.2320 against the pound, rising from its lowest level in two weeks. Compared to the Swiss franc, the greenback was at 0.9669, after a 0.6% loss in the previous session.