Australian Dollar Shines as China Ends Zero-Covid Policy

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Tuesday’s holiday-weakened trading saw the Australian dollar (AUD) rise to about $0.675; China’s announcement that it will abolish quarantine rules for incoming tourists beginning on January 8 symbolized the end of its “zero-Covid” policy and boosted market sentiment.

Australian Dollar Comes On Top

The resumption of China’s outward visa issuance on January 8 made the Australian dollar one of the strongest ones today. Following the news, Australia was one of the top 10 travel destinations in China with the fastest-growing search volume, demonstrating the country’s popularity with Chinese travelers. Owners of tourism businesses are optimistic that visitor numbers, which are 95 percent below pre-pandemic levels, will rebound strongly.

Concerned about China’s lack of transparency regarding infections and variations, Japan, India, Italy, and South Korea all announced they would impose stricter COVID-testing procedures on visitors from China. However, the Australian government has yet to comment on the matter.

A recent spike in Australian bond yields also helped the dollar as anticipation grew that Japanese investors could sell Australian securities to remit some money home after the Bank of Japan (BoJ) surprised markets by adopting a hawkish stance.

At its meeting in December, the Reserve Bank of Australia increased its benchmark interest rate by 25 basis points to 3.1%, bringing borrowing costs to a level not seen in ten years.

The Reserve Bank of Australia (RBA) has now increased the cash rate for eight months running and stated that it anticipates tightening further to reduce inflation.