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Asian Session – Dollar rebounds while China angst continues

The dollar climbed higher towards the end of the Asian session, following volatile trading on Friday and today, as anxiety about China conflicted with signs of a solid labor market in the United States.

The yen gained to a fresh 5-month high during Monday’s Asian trading as China’s move to push the yuan higher for a second straight day, failed to allay concerns about the country’s stock market and its economic growth prospects. Chinese stocks started the week under pressure as the country’s main stock index dipped another 5%.

On Saturday, figures about Chinese consumer and producer inflation for December met expectations at an annual 1.6% (CPI) and -5.9% (PPI) respectively. The size of the annual fall in producer prices was noteworthy nevertheless.

Dollar / yen dropped to 116.71 before recovering above 117 to 117.50 as markets rebounded. Many traders hope this week will bring some stabilization following one of the worst beginning weeks in history for stocks. The euro fell below 1.09 to 1.0885 while the pound was near the 1.45 level against the US dollar at 1.4540 (it briefly fell below 1.45 in earlier trading).

Oil was again under pressure as it fell to $32.50 a barrel. The drop in oil combined with a sharp fall in the South African Rand, which dived after Japanese accounts sold the currency aggressively in low liquidity conditions. This created nervousness for many emerging market currencies. The Tokyo market was closed today due to a national holiday.

Looking ahead to the remainder of the day, Eurozone Sentix investor sentiment of January will be the main news item of the European session, while in Canada housing starts for December will be watched. Otherwise the day is expected to be relatively quiet as the market will continue to digest Friday’s US employment report.

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