Chinese Stocks Driving FX
Risk appetite suffered somewhat overnight on the back of weaker Chinese equities, which triggered some selling of USDJPY and cross-yen. Having closed below the psychological 2000 level on Tuesday, the Shanghai composite continued its descent, touching a new four-year low of 1972.8. Comments from US Senate Majority Leader Reid did not help either when he revealed that ‘little progress’ had been made so far in negotiations on how to avert the fiscal cliff. The OECD forecasted that the RBA is likely to cut the cash rate to a record low of 2.75% by early-2013, bit this did not affect the Australian dollar unduly. Chicago Fed President Evans (who becomes an FOMC voter in January) said it is important for the Fed to buy assets at a pace of $85 bn per month next year. The implication here is that he wants to double the pace of balance sheet expansion (which is currently $40 bn per month).
Click here to read the full report: UBS Morning Adviser Europe
UBS Investment Bank