Dollar Holds Steady, Sentiment Gains Traction
China’s money market rates will remain in focus as market participants look to climb a wall of worry. However, liquidity remains sufficient and the Chinese central bank appears to trying to get banks to find their way through this liquidity issue. Since the major squeeze in June, conditions have been somewhat calmer, but pressure is typically evident at month and quarter ends. The BOJ continues to pump 75 billion dollars’ worth of yen per month into the system while the US announced a 10 billion dollar per month tapering last week.
The in China, the 7-day repo rate jumped nearly 2.5% last week to 6.62%, a level not seen in six months. At the same time, Chinese officials may be more concerned about the persistent increase in long-term rates. This change is more of a liquidity squeeze than traders pushing up rates do to stronger than expected data.
Chinese stocks ended their 9-day losing streak. The Shanghai Composite has closed up 0.2%, snapping its longest losing streak since 1994. Shares rose despite another spike in short-term interest rates even though the People’s Bank of China provided a further emergency injection of money on Friday.
The Bank of Japan continues to buy $75 billion a month of assets, but many expect the BOJ to step up its asset purchases after the impact of the retail sales tax hike on April 1,2104 . Japanese Fiscal policy remains accommodative. Over this past weekend, the Japanese government unveiled the budget for the new fiscal year and it includes a 3.5% increase.
The USDJPY continued to hold steady above support near the 10-day moving average. Momentum is strong as the MACD prints in positive territory with an upward sloping trajectory.
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