Marking Time Ahead Of The Week's Big Events

Separately, Japan reported its current account surplus has halved in April to JPY1.3 trillion from March. For all but one year (2014) in the past 20, Japan's current account deteriorates in April. With rising commodity prices, it is understandable why many observers anticipated a negative terms of trade shock for Japan, but it is not materializing. Consider that in Q1 21, Japan recorded an average monthly trade surplus of JPY459 bln. Last year was an anomaly, but in Q1 21, the trade surplus averaged JPY50 bln a month, and in Q1 18, it averaged JPY237 bln a month.

China reported that its foreign exchange reverse repos jumped to $87 bln in April, up from $2 bln in 2020. Some suspect that this could be a sign of officials trying to resist yuan appreciation. It could be, but it seems unlikely. Recall that through Q1 21, the yuan has slipped fractionally against the dollar (~0.4%). April's rise of 1.2% offset March's gain. Official efforts to slow the yuan's appreciation did not appear to begin until May. The dollar trended broadly higher in Q1 as it recovered from the accelerated sell-off in November and December 2020. The yuan appreciated in the last seven months of 2020 and gained another 1.5% in January before falling in February and March.

The dollar recovered from JPY109.20 to almost JPY109.60, around where it peaked yesterday. The option for nearly $1.1 bln at JPY109.50 appears to have already been neutralized. Without better interest rate support, it is difficult to see the greenback rechallenging the JPY110 area. After peaking above $0.7760, the Australian dollar has drifted lower and, in the European morning, slipped below the $0.7745-$0.7750 area that houses expiring options for almost A$900 mln. Near yesterday's low is another option that will be cut today (A$400 mln at $0.7725). So far this month, the yuan is alternating between advances and declines. The yuan ticked up ahead of the weekend, slipped yesterday, and is a touch firmer today. The PBOC's reference rate for the dollar (CNY6.3909) was close to the median forecast in Bloomberg's survey (CNY6.3903). 

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Read more by Marc on his site Marc to Market.

Disclaimer: Opinions expressed are solely of the author’s, based on current ...

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