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Daily Forex News: June 24th 2013
Asian Markets Dragged Down by China, Dollar Extends Recent Post FOMC Rally
Asian markets were dragged down by worries over China as the week opened. The Nikkei dropped 167 points, or 1.26% to close at 13,062 while the Hong Kong HSI was sharply lower by dropping 2%. In China, the 7-day repo rate on Friday soared to the highest since at least 2003, suggesting tightening of interbank funding. Xinhua news stated that the sharp increase in interest rates was driven by “market distortions caused by widespread speculative trading and shadow financing”. It affirmed that liquidity in China’s financial sector remains ample. However, markets are clearly concerned with financial stability in China. Peoples Bank of China announced after the second quarterly meeting that the central bank would “appropriately fine tune its monetary policy”. It’s the first time since September that the Peoples Bank has used the “fine-tune” phrase, signaling the monetary policy outlook would be more accommodative.
In the currency markets, the dollar extended the post Federal Open Market Committee rally this week and edged higher against European majors. USD/JPY and USD/CAD are the two strongest pairs so far: In particular, last week’s rise in USD/CAD, which took out an important resistance level of 1.0445, suggesting more medium term strength back to 1.0656 resistance next. AUD/USD is holding above last week’s low for the moment despite negative news from China.
In Australia, Prime Minister Gillard noted that recent depreciation in the Australian dollar would help rebalance growth. And, in those circumstances, “sustained depreciation” would be a “very good thing” to “stimulate further growth in the non-mining sector”. Some economists, including Goldman Sachs and Bank of Australia saw over 20% chance of recession in Australia. But Gillard criticized that “confidence matters” and “any irrational threat to economic confidence is a threat to jobs and growth.”
In the Eurozone, Bundesbank head Weidmann said that “neither states nor the private sector should assume that the current phase of low interest rates is here to stay.” And he noted that “possible problems with government finances should certainly not delay the necessary tightening of monetary policy in the case of price pressures”. However, he said he didn’t see such price pressure currently.
Looking ahead, German Ifo business climate is the major focus today.
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