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Risk appetite saw slight erosion in the Asian session, with the USD as the principal gainer. Equity markets across the region were weaker, with the Hang Seng down -1.66%. The heavy tone was not helped by New Zealand, which saw a jump in unemployment data from 6.5% to 7.3% (a 10yr high). Pre-data, markets had been aggressively pricing in RBNZ rate hikes as early as April, but these worrying…

Just a day after the RBA mentioned China shift in policy as a rational for holding rates, Fitch Rating warned that banks in China faced the greatest “bubble risk” of any Asian country. This temporarily took the wind out of the risk-on tone, pushing the EURUSD down to 1.3946. However, markets were able to rally as Europe opened and traders prepared for an event and data filled day. Gold then broke…

The RBA stunned the market by holding their cash rate steady at 3.75% and not hiking another 25bp, as was widely expected (roughly 80%). The AUD immediately collapsed, as traders anticipated eroding yield spread. The AUDUSD shed nearly one and a half big figures, trading from 0.8927 to 0.8780. However, the RBA’s accompanying statement clearly indicates that rates might go higher in the future….

Negative risk sentiment is still clearly the driving theme in the FX markets. Last week, already skittish investors were hit with the “trifecta” of problems. Rising CDS spreads on sovereign debt, worries that China would take a less accommodative stance in monetary policy and political risk in the US (take your pick: Bernanke’s confirmation, banking regulations and/or Obama’s whopper Budget)….

Despite the temporary boost in risk appetite, markets are still overly risk averse. Sovereign concerns clearly took center stage, weighting on the EUR yesterday, as an article in the Financial Times said that EC officials were planning a rescue plan for Greece . An unnamed source stated that “we may act when policies in one country are putting at risk economic and monetary stability”. As pressure…

Yesterday’s FOMC statement provided an unexpected split vote that suggests the Fed may be starting to lean away from continued loose monetary policy. Although the committee members kept interest rates unchanged and preserved most of the wording from the last statement, Fed member Hoenig dissented in the vote; as he believed “that economic and financial conditions had changed sufficiently that…

The front page of the FT reads “Athens invites Beijing to buy Bonds”. It seems that Greece is trying to woo China into buying eur25bn worth of sovereign debt. While the article makes the deal seem positive to China , we are doubtful that China would happily pick up more risky paper with just the thin promise of “we won’t default”. Especially considering they are already sitting on a massive pile…

Risk appetite has suffered further setbacks in the past day on fears of China is clamping down on lending, Barack Obama’s proposals to freeze US spending, and this morning’s downgrade of Japan’s outlook to ‘negative’ by S&P ratings agency. Despite the latter development, JPY is higher on the day as the arguments for broader risk aversion are overpowering the logic that Japan’s economy may…

Market Awaits BoJ, FOMC and RBNZ Decisions   Currency markets are consolidating at the beginning of this week after the turmoil of Obama’s banking overhaul proposals. A sparse data calendar on Friday combined with very few releases today means that most traders are likely to remain on the sidelines until further details of the Volcker rules are announced, or until market attention is drawn…

After President Obama’s dramatic speech yesterday on banking reforms, the tremors are still reverberating through financial markets. US indices took the brunt of the impact yesterday afternoon, and in the FX space, the JPY is still elevated against the USD and other crosses. However with a high degree of uncertainty still surrounding specific details; whether these sweeping changes can be passed,…