Overview
Over the weekend, the PBoC lowered the RRR by 100bps to 18.5% which is the second industry-wide cut in two months and the biggest since Nov’08 in order to provide a boost to the economy as growth continues to dissipate. This unannounced but widely expected move by the central bank lifted the antipodean currencies to briefly touch 1 month highs overnight with AUD/USD printing highs of 0.7843. However, heading into the European market close, RBA's Governor Stevens said that AUD could well depreciate in due course as a lowering of interest rates `has to be on the table sending AUD/USD on a downward trend ahead of tomorrow’s RBA Minutes which will provide the market with further details on the central banks rationale behind leaving rates on hold at its last meeting.
Meanwhile, the USD-index bounced back from last week's losses and exhibited broad based strength throughout the session despite CFTC data showing that net long USD positions have narrowed 21% compared to November. In what has been an uninspiring session in terms of tier 1 data releases, the firmer greenback caused EUR/USD to underperform the major pairs as Greek political uncertainty continues to loom with many doubting the ability of the troubled nation to remain afloat as it has an upcoming IMF interest payment of EUR 200mln due on May 1st and a further EUR 800mln due to May 12th. GBP/USD has also been softer with ambiguity surrounding the May election continuing to put investors off GBP. Elsewhere, the Russian Central Bank have increased rates of 1 week FX repos to LIBOR+200bps, 1 month FX repos to LIBOR +200bps and 1 year FX repos to 250bps which saw USD/RUB surge by over 1000 pips to reclaim the 52.00 handle.
Looking ahead, the economic calendar is rather light with tier one releases in the form of the RBA meeting minutes, German and eurozone ZEW survey and US API crude inventories.