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With Japan closed today for the Emperor’s birthday, the main lead Asia has to work off is China. Investors will monitor interbank rates after a spike to 10% before pulling back to close at 7.6%. This alarming move saw Chinese markets were down for nine sessions in a row and this was the worst run since 1994.
The PBoC has been trying to stay out of the market as the country looks to liberalise money markets. On Sunday the PBoC injected $49 billion (300 billion RMB) into the system and we’ll be keen to see if this has an impact on markets today. The PBoC said it will inject more if needed. Should the situation calm over there then it could be a catalyst for a bounce in Chinese equities and risk currencies like the AUD. Analysts increasingly feel that the tightening of conditions is temporary and seasonal by all means. The injection from the weekend supports the notion the PBoC will act to return market conditions to normal and therefore a re-run of the prolonged June cash crunch seems unlikely.
AUD bounces but downtrend still intact
AUD/USD reversed higher on Friday and not even a much better than expected US GDP reading could hold back the recovery. A lot will be pinned on China today but it already seems like Positive sentiment is feeding through to the AUD. The pair is now sidelined at around 0.893 but remains in a short term downtrend channel. I continue to feel any moves back towards the 0.90 level will be used as an opportunity for fresh selling.
After the RBA said last week any moves above 0.90 will be uncomfortable for the domestic economy, traders are likely to be nervous to hold longs in the pair beyond this level. Of course this week will be light on the economic calendar front and therefore moves are likely to be relatively limited.