Written by Vidya Ranganathan
SINGAPORE (Reuters) – The dollar maintained its gains and even extended some gains in Asian trading on Monday as a holiday in Japan drained liquidity, leaving somewhat disappointing Chinese stimulus announcements at the end of the week the focus of market attention.
The euro fell 0.13% to $1.0922, and the pound sterling was lukewarm but fell 0.2% at one point. The dollar rose 0.13 percent against the Japanese yen to 149.2750 yen.
The index was just above 103 and closed at its highest level last week, its highest level since mid-August, on the back of traders reducing their bets on more massive interest rate cuts by the Federal Reserve at its remaining meetings this year.
The Chinese yuan fell 0.2 percent against the dollar, while the Chinese yuan, whose fortunes are closely linked to China, fell 0.16 percent to 0.67385 US dollars.
China said on Saturday it will significantly increase government debt issuance to provide support to low-income people, support the real estate market and replenish the capital of state banks as part of its efforts to revive faltering economic growth.
Without providing details on the size of the fiscal stimulus being prepared, Finance Minister Lan Fuan said at a press conference that there would be more “counter-cyclical measures” this year.
“Markets are likely to be disappointed that the Chinese Ministry of Finance has not unveiled concrete additional stimulus,” Richard Franulovich, head of FX strategy at Westpac, said in a note.
“This weekend’s press conference mostly reinforces our existing expectations that the Chinese policy pivot is worth a one-off 3-4 cent increase in the balance of the Australian dollar, half of which is already priced in.”
He said further steps are unlikely until progress is made toward addressing excess housing, local government debt and demographic challenges as China’s population ages.
The euro has fallen 0.7% against the dollar since September 24, when the People’s Bank of China launched the most aggressive stimulus measures in China since the pandemic.
The CSI300 broke records for daily moves and was up 18% overall. But stocks have grown choppy in recent sessions as initial enthusiasm over economic stimulus has given way to concerns about whether policy support will be significant enough to revive growth.
“More time may be needed to take more deliberate and targeted actions,” said Christopher Wong, currency strategist at OCBC in Singapore. “But these measures also need to come quickly because markets are eagerly awaiting them. Over-expectation versus under-delivery will lead to disappointment…”
Currency movements in major markets were tepid last week. The yen and euro fell about 0.3 percent each, the pound sterling fell 0.4 percent, and the dollar index rose 0.4 percent.
US Treasuries are unlikely to make much of an advance on Monday, as markets in Japan and the US are closed for the holidays.
Data last week in the US showed consumer inflation slightly higher than expected, but higher weekly jobless claims also did not dampen expectations that the Fed will cut interest rates by 25 basis points in November and December.
Next on traders’ radar will be Thursday’s US retail sales and jobless claims data, and a policy review by the European Central Bank.
Fed Governor Christopher Waller speaks later Monday. He is one of the voices in favor of deeper interest rate cuts because he is now concerned that the pace of rate increases is falling short of the Fed’s target.
The New Zealand dollar fell 0.15% to US$0.61, following last week’s 0.8% decline after the central bank cut interest rates by half a point and hinted at further cuts to come.
Singapore’s central bank kept its currency-based monetary policy steady on Monday.
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