Talking Points:

Commodity Dollars Soar After China Issues 100bps RRR Cut for Top Banks
Japanese Yen Gains Amid Risk Aversion, Euro Declines on Greece Jitters
US Dollar Looks to Dudley Comments to Drive Rates “Liftoff” Speculation

The Australian, Canadian and New Zealand Dollars outperformed in overnight trade after China unexpectedly cut the reserve requirement ratio for major banks by 100bps to 18.5 percent over the weekend, bringing it to the lowest level since December 2010. Markets probably interpreted stimulus expansion as potentially supportive for growth and commodity demand, which may bode well for cross-border sales and thereby overall performance (with the requisite benefits to the monetary policy outlook) for raw materials exporters.

The Japanese Yen likewise advanced as stocks declined in Asian trade, boosting demand for the safety-linked currency. Meanwhile, the Euro came back under pressure amid ominous comments about the festering crisis in Greece. ECB policymakerChristian Noyer said the country may not find collateral for loans and warned that its exit from the Eurozone would be traumatic for the region as well as the world economy at large. These sentiments were echoed by Greek Finance MinisterYanis Varoufakis, who said “anyone who toys with the idea of cutting off bits of the Eurozone hoping the rest will survive is playing with fire”.

Looking ahead, a quiet economic calendar in European hours will put Fed-speak in the spotlight. Comments from New York Fed President Bill Dudley are scheduled to come across the wires, with traders looking to the speech to drive continued speculation about the timing of the US central bank’s first post-QE interest rate hike. Futures markets now envision the first increase in the baseline lending rate by October. Rhetoric suggesting the onset of tightening may yet arrive around mid-year is likely to offer a lift to the US Dollar.

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