Dollar Stabilizes At Elevated Levels After Surging Yesterday

As suggested here yesterday, a supplemental budget in Japan is likely. We had arrived at that conclusion through observing Japan's fiscal modus operandi, Prime Minister Suga's low support ratings ahead of the October election, the poor showing of the ruling coalition in the Tokyo assembly, and the economic weakness seen in the first half of the calendar year. A Bloomberg survey found median expectations for around JPY20-30 trillion supplemental budget, with about JPY7.5 trillion of new bond issuance. Some of the funds may be targeted to helping the semiconductor industry, for which the US has also earmarked some monies for as well.  

The Deputy Governor of the Reserve Bank of Australia and Deputy Head of the RBA board, Debelle, has been renominated for another five-year term. He is recognized as Governor Lowe's likely successor. Lowe's term is up in September 2023, though it could be extended. The takeaway is continuity at the RBA.  

The dollar's losses were extended to JPY110.40 earlier today, its lowest level since June 22, but it has found a bid and made new session highs in the European morning above JPY110.75. Talk that Toyko may announce another formal emergency appeared to weigh on the yen. There is an option for a little more than $1 bln, stuck at JPY111, that expires today. There are also chunky options at JPY111.25 that expire over the next two sessions. The Australian dollar posted a big outside down day after posting a big outside up day after the US jobs data at the end of last week. Still, there was no follow-through selling and yesterday's $0.7480 low held. There is an option at $0.7500 for around A$365 mln that expires today. Additional optionality in the $0.7530-$0.7550 area expires in the next could of sessions. The Chinese yuan rose about 0.25% to recoup yesterday's loss. The PBOC set the dollar's reference rate at CNY6.4762, a bit firmer than recently against expectations (Bloomberg survey) for CNY6.4750. Separately, China reported a slight decline in the dollar value of its reserves for the first time in three months ($3.214 trillion vs. $3.221 trillion), which is hardly worth explaining and is easily accounted for by valuation shifts--a rounding error. Note too that the value of China's gold reserves fell by about $9 bln last month.  

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Read more by Marc on his site Marc to Market.

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