Rates as of 0630 GMT

Market Recap

The focus now is on China and the prospects of further lockdowns there as COVID19 cases surge and parts of Beijing go into lockdown for mass testing. Fears of a slowdown in China sent equities sharply lower yesterday, with the CSI 300 index falling 4.94, its largest oneday decline since February 2020, the beginning of the pandemic. It continued falling today, down 0.8 at the time of writing, to a twoyear low.

The fears sent commodity prices lower

and reduced inflation expectations in most countries

which helped bond markets to rally, especially in Europe.

Nonetheless, the renminbi CNH recovered after the Peoples Bank of China PBoC registered its disapproval of the weakness by cutting financial institutions forex reserve ratio by 1 percentage point to 8. The forex reserve ratio is the amount of a banks foreign exchange holdings that they have to keep in reserve while trading. Lowering the ratio allows banks to trade more in the forex market. The PBoC uses the ratio as a signal for where they want the renminbi to go, lowering it when they think the currency is too weak and raising it when the currency is too strong, or at least when they disagree with the pace of a move.  The PBoCs action snapped five days of losses for CNH.

AUDUSD hit a twomonth low of 0.7135 before recovering along with CNH. Its somewhat surprising to see the three commodity currencies all higher this morning despite the fears over global growth.

That…