The dollar remains generally weak today with dollar index dipping to 79.08 so far. Meanwhile, the EUR/USD extends recent rally and broke 1.38 level and took the USD/CHF below 0.89. However, Sterling lags behind with the GBP/USD staying below recent resistance of 1.6259. Meanwhile, the AUD/USD was lifted by China's manufacturing data and is back above 0.96 for the moment. The Canadian dollar remains pressured by yesterday's BoC statement. The yen is staying in tight ranged today, but with bias remaining on the upside.
The worry over China's tightening weighed down Asian equities. Investors were concerned that the People's Bank of China would tighten its monetary policy, as house prices rose the most in nearly 3 years in September. The 7-day repo contract, having dipped steadily since October 9, soared to as higher as 4.55% before settling at 4.05%, up from 3.45% in the previous day. The market also worried about a Bloomberg report citing that Industrial & Commercial Bank of China Ltd. (ICBC) and its four main rivals wrote off RMB 22.1B (US$ 3.65B) of bad debts in the first 6 months of the year, compared to RMB 7.65B the same period last year. The yen could extend the current rebound if the concern persists.
Yesterday, the BOC left the overnight rate unchanged at 1%, while the Bank rate stayed at 1.25% and the deposit rate 0.75%. Yet, policymakers dropped the tightening bias affirmed over the past meetings, reading "over time, as the normalization of these conditions unfolds, a gradual normalization of policy interest rates can also be expected, consistent with achieving the 2 percent inflation target". Removal of this reference raised speculations that the BOC might consider rate cuts in future policy meetings. On the economic outlook, the BOC revised lower to growth forecasts for Canada from 1.8% to 1.6% in 2013 and from 2.7% to 2.3% in 2014. The global economy is projected to grow by 2.8% in 2013 and accelerate to 3.4% in 2014 and 3.6% in 2015. The BOC also noted the low inflation in Canada, suggesting that it reflected "the significant slack in the economy, heightened competition in the retail sector, and other sector-specific factors". Yet, it expected both total CPI and core inflation would to return 2%, around the end of 2015.
The euro and Swiss franc are so far the biggest winner this week. Data from Eurozone saw Spanish unemployment dropped more than expected to 26.0%. French PMI were disappointing with manufacturing PMI dropped to 49.3 while services PMI dropped to 50.2. German and Eurozone PMI will be released later today. From the US, trade balance, and new home sales will be released in US session. Also, markets will pay attention to BoE governor Carney's speech.