An expansion of the yuan’s trading band fails to lift sentiment

After an early sell-off, it was a fairly quiet day for traders in Asia, with the lack of market moving announcements and data releases keeping a few investors on the sidelines. Thus, the dollar and the yen were bought on the back of fears surrounding a possible Spanish default which is threatening a broader recovery in the Eurozone.

The big piece of news over the weekend was a widening of Beijing’s trading range on the yuan, which the government doubled to 1.0%. Whilst the timing of the move is somewhat surprising- given the current slowdown in GDP growth – it does suggest the Beijing is confident the Chinese economy will be able to avoid a hard landing. We agree with this view, but in order for it to happen we will likely have to see the government act more aggressively to bolster growth, recent figures show that new lending is increasing, which is a form of policy easing, but it will likely not be sufficient to stop a domestic growth slowdown. Accordingly, the government will likely introduce more growth supportive measures later this year, which should be risk-positive. Hence, even though there is a limited direct impact of an increase to the yuan’s range on the market, the indirect impact on risk sentiment should support high beta assets.

However, renewed fears about the European debt crisis outweighed any risk positive sentiment stemming from Beijing. The aussie was one of the biggest losers, with AUDUSD breaking through 1.0350 early in the session, before coming to a rest around its 200hr SMA which currently resides around 1.0319. AUD also suffered heavily against the yen, but found some support around 83.00. Commodity prices softened a little, with WTI reaching a session low of around 102.46 and gold briefly sinking below USD1645.00.

Investors in Europe will likely be focused on bond yields in Spain as fears about rising debt yields spur talk of Spanish default. However, the big event for Spain will be a bond auction tomorrow, and if the Spanish government fails to get the expected take up or if bond yields rise significantly risk assets will likely face some heavy selling pressure.

Nonetheless, there is some data scheduled for release in the London session, with the biggest impact on the market expected to come from retail sales figures out of the US at 12:30GMT. The market is expecting advance retail sales to have increased 0.3% during March, compared with a prior 1.1% increase.

Источник: Forex.com

16.04.2012