QE How Much and for How Long - Yesterday USD short covering rally has run out of steam but the USD remains confined to yesterday's trading range. I'm sure that central banks around the world took every opportunity to sell USD into the rally in order to further diversify their reserves. Yesterday USD rally stemmed from speculation that the Federal Reserve might announce plans to buy less assets to stimulate the economy next week as the guessing game about how much they would purchase continues. Bloomberg has reported that the Fed has surveyed bond dealers and investors over the size and impact of a quantitative easing program, with scenarios ranging from zero up to $1 trillion. I would conclude that the Fed is trying to determine the market's expectation on next week's QE so that they don't disappoint the market. A similar Rueters poll suggests that analysts expect the Fed to buy $80 billion to $100 billion worth of assets per month. In Asia, the big news is not the downgrade of growth by the Bank of Japan or the details of the different assets that the BOJ plans to buy in its QE program, but the fact that the BOJ is bringing forward the date of its next policy meeting to follow next week’s Fed decision. Why? - because they are afraid that next week's Fed decision will cause the Yen to appreciate. Wow, I wounder what happened to last week's G20 communicate that they would not engage in currency devaluations? Not to be out done, China Yuan fell to its weakest level this month after the central bank set a lower reference rate for a third day, spurring speculation the government is limiting appreciation. It looks like to me that China is taking every opportunity to fix the Yuan lower so that the Yuan appreciation they have to deliver ahead of G-20 summit in Seoul on Nov. 11-12 will not be too strong. Also in Asia, the NZD was up after Reserve Bank Governor Alan Bollard said interest rates will probably need to rise in the future. In Canada, the CAD was slightly firmer on a softer tone for the USD. It looks like to me that after yesterday's action market players are positioned for the Fed's November 3rd QE announcement.
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