From Tom Westbrook, a look at what the day holds in store for markets around the world and in Europe During this Good Friday, the markets are waiting for important inflation numbers from the United States, but the spotlight is shifting to a dramatic increase in the volatility of the yuan.
As a result of the yuan experiencing some of the most significant fluctuations against the dollar this year, traders are beginning to assume that the People's Bank of China is making some kind of change after it has been stagnant for several months.
Over the course of a few turbulent days, the currency has broken through the 7.2 per dollar barrier, returned, and by Tuesday, it was once again falling toward the 7.2 level. This occurred despite the fact that the central bank had sent a signal of support by setting the daily trading band in a strong manner.
The fact that the dollar/yuan pair broke 7.2 in the same week that Japan abandoned its policy of negative interest rates, only to see the yen decline, is something that analysts at the National Australia Bank believe is more than a coincidence.
The yuan has reached a three-decade high against the yen, which NAB analysts believe may have been the impetus for China's foreign exchange authorities to relax their control over the currency from their previous position.
They might continue to let the yuan to decline, which would put pressure on the Australian dollar as well, given that it frequently trades in sympathy with the yuan. This would be the case unless or until the dollar/yen exchange rate stabilizes. During the past week, short holdings in the Australian dollar increased, and the currency has had a difficult time breaking out of a confined range this year. It appears that the New Zealand dollar, which is likewise sensitive to the yuan, is under pressure as it has broken through support and reached lows that have not been seen in four months.
Tuesday is a relatively quiet day on the schedule in Europe, while the United States is expected to release second-tier statistics, including readings on consumer confidence, manufacturing, services, and durable goods.
Although most markets are closed on Good Friday, this day also marks the publication of the Federal Reserve's preferred inflation measure in the United States. On Tuesday, Asian markets and the yuan both experienced a little decline. However, the yen did not fall and remained stable at 151.38 per dollar. This was due to the fact that officials warned of the possibility of intervention.
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