Riskier currencies including the Australian dollar on Friday surged after China’s central bank cut the amount of cash that banks must hold as reserves, with markets also expecting the European Central Bank to unveil more stimulus next week.
The People’s Bank of China said it was cutting banks’ reserve requirements for the third time this year, sending a ripple of optimism through currency markets, though analysts questioned how much stimulus global central banks have left.
“This won’t be a flood of stimulus,” said Neil Mellor, a senior FX strategist at BNY Mellon in London. “China and many other countries are in the same boat with fiscal policy constrained by debt and central banks resorting to jawboning and some targeted easing.”
The Chinese currency in the offshore market extended gains and was trading up 0.4 percent against the greenback at 7.1120 yuan as investors said the latest round of easing indicated Beijing was willing to act to boost the economy.
Edward Park, deputy chief investment officer at Brooks Macdonald Asset Management, who is still overweight on asset allocation to Chinese equities, said “their positioning is an acknowledgement of the fact that the government has a large amount of flexibility to ease further as needed.”
The Australian dollar — its fortunes closely intertwined with the Chinese economy — gained 0.3 percent against the greenback, while the Japanese yen was up 0.18 percent.
The US dollar slipped against many of its rivals, holding above a one-week low as a mixed report on the US jobs market last month reinforced the view of a slowing expansion and the possibility of more interest rate cuts from the US Federal Reserve.
“The jobs data were sufficiently mixed,” said Marc Chandler, chief market strategist at Bannockburn Global Forex LLC in New York. “The market is not going to change its view of a rate cut later in September.”
The greenback also lost ground as global tensions receded this week, most notably with China and the US agreeing to high-level trade talks next month.
Safe-haven bids for the dollar abated in response to political opposition to a “no-deal” Brexit and Hong Kong Chief Executive Carrie Lam’s withdrawal of an expedition bill that triggered months of violent protests.
The US dollar also fell against the Taiwan dollar on Friday, shedding NT$0.023 to close at NT$31.257, down 0.49 percent from last week’s NT$31.41.
Turnover totaled US$1.02 billion during the trading session.
The greenback opened at the day’s high of NT$31.290, and moved to a low of NT$31.230 before rebounding.
Additional reporting by staff writer
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