Commodity FX (CAD AUD NZD NOK)

ONE MORE WORD ABOUT THE CHINA HIKE.

if you read my IMT from last night, i was already assuming they will tighten. The QUESTION I raised was not whether they will tighten but WHETHER they will raise interest rates or raise the RR. And if you also read the IMT, you would have read that doing ONLY a RR hike would have a muted effect on the market. So WHY where people on twitter surprised that the hike had a muted effect?

And those who blamed the fact that they were asleep or in different time zones, then they can subscribe to my IMTs and get them in the email.

You cannot expect any more from free service.

HERE IS THE IMT WRITTEN AT 2:00 am GMT

December 9, 2010 20:47 ET: WILL ANOTHER CHINESE TIGHTENING shake off rising markets? The PBOC has raised reserve requirements twice last month after hiking interest rates on October 19. The stepping up of monetary tightening is a result of escalating bank lending and more recently mounting inflationary pressures (CPI at 4.4% in October, expected above 5% in November). The latest sign that PBOC will tighten policy is the cancellation of the 3-year auction after banks refused to buy bills at cheaper yields. The PBOCs refusal to lift yields suggests it will opt towards raising the reserve requirement ratio (RRR) instead of raising interest rates. If the PBOC goes with only the RRR and leaves interest rates unchanged, then the negative market reaction may be relatively modest. An actual hike in interest rates would have more of an impact in the form of stronger USD vs. EUR, NZD and AUD, and a short-lived pullback in yen crosses such as 62 in NZDJPY. Nonetheless, in the medium-term, I remain bullish USDJPY, expecting 85.90.


Ashraf