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Commodity Dollars Soar After China Cuts Reserve Requirement Ratio

Commodity Dollars Soar After China Cuts Reserve Requirement Ratio

Ilya Spivak, Head Strategist, APAC

Talking Points:

  • Commodity Dollars Soar After China Issues 100bps RRR Cut for Top Banks
  • Japanese Yen Gains Amid Risk Aversion, Euro Declines on Greece Jitters
  • US Dollar Looks to Dudley Comments to Drive Rates “Liftoff” Speculation

The Australian, Canadian and New Zealand Dollars outperformed in overnight trade after China unexpectedly cut the reserve requirement ratio for major banks by 100bps to 18.5 percent over the weekend, bringing it to the lowest level since December 2010. Markets probably interpreted stimulus expansion as potentially supportive for growth and commodity demand, which may bode well for cross-border sales and thereby overall performance (with the requisite benefits to the monetary policy outlook) for raw materials exporters.

The Japanese Yen likewise advanced as stocks declined in Asian trade, boosting demand for the safety-linked currency. Meanwhile, the Euro came back under pressure amid ominous comments about the festering crisis in Greece. ECB policymakerChristian Noyer said the country may not find collateral for loans and warned that its exit from the Eurozone would be traumatic for the region as well as the world economy at large. These sentiments were echoed by Greek Finance MinisterYanis Varoufakis, who said “anyone who toys with the idea of cutting off bits of the Eurozone hoping the rest will survive is playing with fire”.

Looking ahead, a quiet economic calendar in European hours will put Fed-speak in the spotlight. Comments from New York Fed President Bill Dudley are scheduled to come across the wires, with traders looking to the speech to drive continued speculation about the timing of the US central bank’s first post-QE interest rate hike. Futures markets now envision the first increase in the baseline lending rate by October. Rhetoric suggesting the onset of tightening may yet arrive around mid-year is likely to offer a lift to the US Dollar.

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Asia Session

GMTCCYEVENTACTEXPPREV
9:10CNYReserve Requirement Ratio for Major Banks 18.5%-19.5%
22:30NZDPerformance Services Index (MAR)57.6-56.0
22:45NZDCPI (QoQ) (1Q)-0.3%-0.2%-0.2%
22:45NZDCPI (YoY) (1Q)0.1%0.2%0.8%
23:50JPYTertiary Industry Index (MoM) (FEB)0.3%-0.7%0.7%

European Session

GMTCCYEVENTEXP/ACTPREVIMPACT
6:00EURPPI (YoY) (MAR)-1.7% (A)-2.1%Medium
6:00EURPPI (MoM) (MAR)0.1% (A)0.1%Medium
7:00CHFSNB Sight Deposits--Low
9:00EURConstruction Output (MoM) (FEB)-1.9%Low
9:00EURConstruction Output (YoY) (FEB)-3.0%Low
13:00EURECB’s Constancio Speaks in Brussels--Low
13:45EURECB Announces Details of QE Purchases--Medium

Critical Levels

CCYSupp 3Supp 2Supp 1Pivot PointRes 1Res 2Res 3
EURUSD1.05661.06811.07441.07961.08591.09111.1026
GBPUSD1.47041.48411.49011.49781.50381.51151.5252

--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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