Foreign exchange rate strategists were cautious as mixed earnings results reflected Chinese policy risks which likewise weighed on equity markets. Barclays economists saw the USD and other safe haven currencies were broadly anchored while the US treasuries rallied. Even then, they still believe that a delay in tapering is tantamount to delays in strengthening the USD.
Investor concerns over a volatile spike in China’s primary short term rates and forex news of some additions in Chinese banks nonperforming loans are done already. The rise in short term funding rates is well anticipated given the following reasons:
(1) The PBoC informed the market that it would not be infusing liquidity via reverse repos
(2) Third quarter tax payments are due now which squeezes out liquidity from the system
(3) Maturing reverse repos will reduce slash liquidity; nonperforming loans may have increased, it makes up less than 1% of total commercial bank assets.
According to the forex news of BNP Paribas, the burst of optimism seen in US equity markets yesterday was in stark contrast to the Nikkei price action in the Asian session. The Nikkei fulfilled a “Bearish Reversal Day”. This gives reason to turn cautious on investors’ bullish view on the Emerging Market’s Asia. It is also interpreted as stalling risks for the AUD/USD uptrend.
A unique overbought forex news was announced on the AUD. Such levels were have only been reached once a year since 2010 and a back-test using ten years of history in BNP Paribas’ also argues for near-term consolidation in the least. It would take a close above the 200-day average at 0.9750 for the uptrend to resume sooner than FX investors expect. Given buoyancy for the EUR, BNP Paribas favour a bounce in EUR/AUD.
Risk Off Mode
More forex news revealed that FX markets are in a risk off mode with the USD losing ground against JPY and CHF versus the EUR and gaining against the NZD, CAD and AUD. Rising money market rates in China led to lower US Treasury yields and poor equity markets. The shortfall in risk sentiment is short lived as the postponement to Fed’s quantitative easing tapering plans until the first quarter of 2014 long carry positions to gain attention from investors. This likewise means that Emerging Markets currencies and commodity currencies gain more.
Forex news on the vulnerability of the USD was perceived as the “reciprocal” dovishness of other central banks, which could make up for the impact from the change in the expectations of the fed. Investors would also not ignore the forex news on the tightening bias by the Bank of Canada along with the incoming US dataflow with an upside surprise. However, investors are still cautious that it would take more time before a clean US economic data will show up.
Forex news on intial jobless claims that will fall to 350,000 are keenly awaited along with August trade deficit to be slim at $38.5B. BNP Paribas has a long position on USD while being currently short position on GBP/USD with a stop loss limit set at 1.6310.
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