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Asian Session – Markets boosted by China RRR cut, shrugging off weak PMI

Shares across Asia opened higher on Tuesday as market sentiment was boosted by yesterday’s move by China’s central bank to cut the reserve requirement ratio. The People’s Bank of China reduced the amount of cash that large banks must hold as reserves by 50bps to 17%. The cut should free up about $107 billion in funds for the banks to lend.

The Shanghai SE Composite index ended the day 1.7% higher, reversing earlier losses from weaker-than-expected PMI data. The official manufacturing PMI for February declined to 49.0 from 49.4 in January, below forecasts of 49.3. The private survey from Caixin also came in below expectations at 48.0 versus estimates of 48.3 and down from 48.4 the prior month. The official services PMI didn’t do much to boost confidence either as it showed the expansion in the services sector slowing in February.

Meanwhile, data out of Japan was mixed with the unemployment rate dropping to 3.2% in January, beating forecasts of 3.3%. But household spending unexpectedly declined, dropping by 0.6% month-on-month in January, confounding expectations of a 0.3% month-on-month growth.

The yen pulled back from the lows it hit at the start of Asian trading as risk appetite improved. This helped the dollar climb from a low of 112.15 yen to 112.96 yen in late session. The euro also advanced from fresh 3-year lows of 122.06 yen to 122.90 yen.

The dollar was broadly steady against other currencies despite dovish comments from a Fed official. New York Fed President William Dudley said on Monday that the balance of risks to growth and inflation are slightly to the downside. The remarks didn’t provide any support to euro/dollar as the pair remained under pressure today from Monday’s flash inflation figures that showed the Eurozone slipped back into deflation in February. The euro held near yesterday’s lows at around 1.0880 dollars in Asian trading today.

The Australian dollar was one of the better performing currencies on Tuesday as the Reserve Bank of Australia held its cash rate unchanged at 2% at its latest policy meeting. In his statement, RBA Governor Graeme Wheeler noted that the Board is keeping an eye on labor market improvements and on the impact of the recent financial turbulence. The {{5|aussie}} rose from 0.7130 versus the greenback before the decision to around 0.7180 in late Asian session.

The New Zealand dollar was also firmer at 0.6619, as it made cautious gains ahead of the latest global dairy action later today.

In commodities, oil prices moved higher on Tuesday after data showing that OPEC output fell in February. US oil futures were last trading 1.3% higher at $ 34.19 a barrel.

Looking ahead to the rest of the day, manufacturing PMI for the Eurozone and the UK will be eyed, along with Canadian GDP data and the ISM manufacturing PMI for the US.

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