Article Highlights

  • PBoC sets yuan reference rate 0.54% higher against the dollar
  • Draghi: further stimulus remains an “open question“
  • AU AIG manufacturing index: 50.2 vs. 52.1 previous
  • AU MI inflation gauge: 0.0% as expected vs. 0.3% previous
  • AU building approvals: 2.2% vs. 1.0% expected, -6.9% previous
  • China’s Caixin manufacturing PMI: 48.3 vs. 47.6 expected, 47.2 previous
  • Japan’s final manufacturing PMI: 52.4 vs. 52.1 expected, 52.5 previous
  • Swiss retail sales and manufacturing PMI on tap
  • Euro Zone’s final manufacturing PMI numbers due today
  • UK manufacturing PMI expected to print at 51.2
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Forex price action started the trading month with mixed results, as traders priced in economic reports and central banker statements over the weekend.

One of the biggest headlines today came from the People’s Bank of China (PBoC), which set its yuan reference rate 0.54% lower against the dollar at 6.3378. The move made forex traders take notice for several reasons.

For starters, the central bank just pulled off the largest increase in its reference rate since 2005 when Beijing unpegged the yuan from the dollar. Not only that, but the move came at the heels of the central bank cutting its interest rates and RRR last month. Lastly, recent reports from China (including the manufacturing PMI over the weekend) don’t really make a strong case for a more expensive yuan.

Analysts believe that the move was mainly for the International Monetary Fund (IMF). You see, China is convincing the global lender to include the yuan in its “special drawing rights (SDR)” reserve currency basket to further its goals in making the yuan a global reserve currency alongside the dollar. The review is scheduled this month and a strong, stable currency would score points for China.

Not surprisingly, the comdolls benefited the most from the PBoC’s move. AUD/USD saw a 20-pip rise (0.31%) to .7140 while NZD/USD rose by 12 pips (0.18%) to .6773. AUD/JPY also swam against the tide and is trading with a 21-pip gain (+0.25%) at 85.94 while NZD/JPY is up 7 pips from its open price.

The dollar was also under the spotlight since the start of the session. Whether it’s the dollar losing a bit of its share in the IMF’s SDR or start-of-month risk-buying, it lost pips against most of its counterparts with short weekend gaps. EUR/USD opened with a 40-pip gap to 1.1037 while GBP/USD also opened with a 41-pip gap before settling back down to near its Friday close.

The yen also saw some action despite a lack of major reports from Japan. One possible reason is that traders are starting to price in weak manufacturing and inflation reports from Australia and Japan’s upward revision to its manufacturing PMI.

USD/JPY is down 9 pips (-0.08%) from its open price after hitting a session high of 120.58 while EUR/JPY is down 15 pips (-0.11%) to 132.78 and GBP/JPY is down 43 pips (-0.23%) to 185.72.

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U.S. Session Recap

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