Asian Session Forex Recap – May 11, 2015

  • Chinese central bank cut interest rates again over the weekend
  • China April CPI: 1.5% actual vs. 1.4% previous, 1.6% expected
  • China April PPI: -4.6% actual as expected
  • Australia’s NAB business confidence steady at 3 in April
  • Eurogroup leaders to pressure Greece into a debt deal?
  • BOE monetary policy statement coming up

Surprise, surprise! China decided to pull another ninja move on the forex markets by announcing an interest rate cut over the weekend, its third one since November last year. This followed the country’s weaker than expected CPI release, which indicated a 1.5% annualized reading for April, lower than the projected 1.6% figure. China also reported a 4.6% decline in producer prices as expected, reminding market watchers that consumer price levels could face further downside.

According to the hotshots over at the People’s Bank of China, the recent interest rate cut shouldn’t be viewed as QE since it is just aimed at stabilizing investment growth. Economic analysts were able to read between the lines though, highlighting the structural weaknesses in the Chinese economy and predicting that further easing moves are likely. Asian equities received a pretty good boost from the latest announcement, which led investors to expect better economic prospects later on.

However, higher-yielding commodity currencies reacted negatively to these reports, as these suggested that the world’s second largest economy could be in for more economic headaches and potentially weaker demand for raw material exports. It didn’t help that Australia’s NAB business confidence index held steady at 3 for April, reflecting the lack of improvement in the sector. AUD/USD is down 30 pips (-0.37%), NZD/USD is lower by 98 pips (-1.30%) and has broken below the .7400 handle, and USD/CAD is up 46 pips (+0.39%).

Forex traders could turn their attention to the Eurogroup meetings and the BOE interest rate statement lined up today, with these events likely to spur additional volatility for the euro and the pound. Creditors are pressuring the debt-ridden nation to come up with an acceptable list of economic reforms in order to secure the next set of aid and avoid a default. Heck, some top-ranking officials have even suggested that, if Greek government officials continue to play hardball, the euro zone might actually be better off without Greece!

As for the BOE monetary policy statement, no actual changes are expected for interest rates and bond purchases but Governor Carney is likely to reinforce their optimistic economic assessment and hawkish stance. If so, the pound might be able to resume its post-election rally since BOE officials are now done with their self-imposed blackout period leading up to the polls.

U.S. Session Recap

Bonnie and Clyde, peanut butter and jelly, Justin Bieber and his hair. Some things just go well together.

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