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Dollar holds gains while investors parse China's stimulus plans
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Dollar holds gains while investors parse China's stimulus plans
Oct 14, 2024 12:30 AM

SINGAPORE (Reuters) -The dollar held onto its gains and even extended some in Asian trading on Monday as a holiday in Japan sapped liquidity, leaving China's somewhat disappointing weekend stimulus announcements the focus of market attention.

The euro was down 0.13% at $1.0922 and the pound was listless but fell 0.2% at one point. The dollar was up 0.13% against the Japanese yen at 149.2750.

The dollar index was just above 103 and closing in on last week's peak, its highest since mid-August, on the back of traders reducing bets on further jumbo rate cuts by the Federal Reserve at its remaining meetings this year.

China's yuan was down 0.2% against the dollar, while the Aussie, whose fortunes are closely tied to China, was down 0.16% at $0.67385.

China said on Saturday it will "significantly increase" government debt issuance to offer subsidies to people with low incomes, support the property market and replenish state banks' capital as it pushes to revive sputtering economic growth.

Without providing details on the size of the fiscal stimulus being prepared, Finance Minister Lan Foan told a press conference there will be more "counter-cyclical measures" this year.

"Markets are likely disappointed that China's Finance Ministry did not unveil concrete additional stimulus," said Richard Franulovich, head of FX strategy at Westpac, in a note.

"The weekend press briefing mostly just reinforces our existing expectations that China's policy pivot is worth a one-time 3-4 cents lift in the Australian dollar's equilibrium, of which about half has already been priced in."

Further moves are unlikely, he said, until there is progress toward addressing excess housing, local government debt and demographic challenges as China's population ages.

The onshore yuan is down 0.7% against the dollar since Sept. 24, when the People's Bank of China kicked off China's most aggressive stimulus measures since the pandemic.

The CSI300 Index has broken records for daily moves and is up 18% overall. But stocks have grown wobbly in recent sessions as initial enthusiasm about economic stimulus gave way to concerns about whether the policy support would be big enough to revive growth.

"More time may be needed for more thought-out and targeted measures," said Christopher Wong, currency strategist at OCBC in Singapore. "But those measures also need to come fast as markets are eagerly waiting for them. Over expectations vs under-delivery would result in disappointment..."

Currency moves in major markets were tepid last week. The yen and euro both fell around 0.3% each, sterling shed 0.4% and the dollar index climbed 0.4%.

U.S. Treasuries are unlikely to provide much of a lead on Monday, since both Japan and the U.S. markets are closed for holidays.

Last week's U.S. data showing slightly hotter-than-expected consumer inflation but also higher weekly jobless claims have left intact expectations for the Fed to cut rates by 25 basis points in November and December.

Traders next have on their radar Thursday's retail sales and jobless claims data in the United States, and a policy review by the European Central Bank.

Fed Governor Christopher Waller speaks later on Monday. He is one of the voices who supports a larger rate cut because he is now worried the pace of price increases is undershooting the Fed's target.

The New Zealand dollar was down 0.15% at $0.61, following last week's 0.8% drop after the central bank slashed rates by a half point and hinted at further cuts to come.

Singapore's central bank kept its currency-based monetary policy steady on Monday.

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