China Chill, BOJ Preview

The fallout from the soft Chinese trade data reverberated Monday but the fear trade was limited. The yen was the top performer while the Australian dollar lagged. The focus now switches to today's Bank of Japan decision.

Chinese trade data was almost certainly skewed by holidays but it was also very weak and it spurred some paring of risk leading and a fall in AUD/USD to 0.9015 from 0.9070 on Friday. The low matched the 50% retracement of last week's rally in a sign the move could be more of a standard bounce than genuine concern about China.

One market that hit the panic button was iron ore as prices fell more than 8% in one of the largest declines on record. Most traders believe the declines were partly due to invoicing fraud in the Chinese banking system and a more-recent crackdown.

Aside from pound weakness, the rest of the FX market was quiet. EUR/USD was reluctant to move with some details of the ECB bank stress tests to be released on Tuesday.

Yen trading was light as the broader risk trade failed to captivate the market. US stocks were flat and  USD/JPY traded in a 103.15-40 range.

Yen volatility will pick up with the BOJ decision due around 0400 GMT (there is no scheduled time).  The Bank of Japan is likely on hold until May as they wait to sort through the impact of the April consumption tax hike but the yen could weaken on any hint of willingness to ease further.