A Reserve Rate Cut by the PBoC Adds to the Greenback’s Allure

China service sector activity picks up as the PBoC announces a 4th cut in the RRR, while the Greenback sees more upside early on.
Bob Mason

Earlier in the Day:

Economic data released through the Asian session this morning was on the lighter side this morning, with stats limited to China’s Caixin services PMI number for September.

Out of China, the Caixin services sector numbers impressed this morning, with the PMI jumping from 51.5 to 53.1 in September, coming in well ahead of a forecasted hold at 51.5.

  • Service sector activity was at its strongest in 3-months, with new orders seeing on the rise and sector sales at its quickest since June.
  • Staffing levels across the sector fell in spite of the pickup in activity, the decline modest and attributed to restructuring plans and non-replacement of voluntary leavers.
  • The downward trend in outstanding workloads continued, September recording a 4th decline in the past 5-months.
  • Input price inflation accelerated to the second steepest since May-12, the steepest having been in January of this year, the acceleration attributed to higher prices for fuel, raw materials and rising staffing costs.
  • In contrast, output charges remained relatively unchanged, Companies indicating a need to remain competitive as a contributory factor.
  • Business confidence eased in September.

The Aussie Dollar moved from $0.70557 to $0.70568 upon release of the figures, before easing to $0.7049 at the time of writing, down 0.04% for the session, risk aversion pinning the Aussie Dollar back at the start of the week.

Outside of the numbers, the PBoC returned from Golden Week hitting the ground running, with China’s central bank announcing another cut in the Reserve Rate Requirement for the majority of banks by 100 basis points, the cut being the PBoC’s 4th for the year. Concerns over the ongoing trade war with the U.S that has contributed to weaker manufacturing sector activity, driving the PBoC into action. The effective date of the cut is Monday, 15th October.

Elsewhere, the Kiwi Dollar continued to struggle, down 0.20% at $0.6430, with the Japanese Yen down 0.09% to ¥113.82 against the Dollar, the losses coming in spite of risk aversion, volumes on the lighter side with Japan on holiday today.

In the equity markets, it was a bad start to the week, with the PBoC decision to ease policy adding to the market angst, the global financial markets in search of a response from China on spy allegations and Trump’s ongoing trade war.

The ASX200 took a heavy hit, down 1.1% at the time of writing, with the CSI300 down 3.16%, the Chinese markets playing catch up after a week off. Bucking the trend at the start of the session was the Hang Seng that found positive territory before succumbing to market forces, the index down 0.6% at the time of writing.

The Day Ahead:

For the EUR, economic data scheduled for release this morning is limited to August industrial production figures out of Germany, which are forecasted to be EUR positive, though how much influence the numbers will have later this morning remains to be seen, geo-political risk expected to be the key driver through the day.

At the time of writing, the EUR was down 0.09% to $1.1514, geo-political risk the key driver, while today’s industrial production will likely influence at the time of release.

For the Pound, it’s a quiet day on the data front, with no material stats scheduled for release to provide direction for the Pound, leaving the markets to focus on Brexit chatter through the day, hopes of a deal now on the rise as Junker joins the optimists.

At the time of writing, the Pound was down 0.04% to $1.3115.

Across the Pond, there are no material stats scheduled for release through the day, leaving the markets to consider rising geo-political risks that could see the U.S and China lock horns this week.

At the time of writing, the Dollar Spot Index was up 0.07% to 95.692, with Oval Office chatter the key driver through the day.

For the Loonie, there are no stats scheduled for release through the day, with Canada on holiday, leaving the Loonie in the hands of market risk appetite and the direction of crude oil prices, an early pullback in oil prices and risk aversion seeing the Loonie down 0.17% to C$1.2961 against the U.S Dollar at the time of writing.

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