China announced a surprise rate cut on Friday but the big question now is whether it was a one-off or the start of a rate cutting cycle. The euro is soft early in early trading; last week the loonie led the way while the yen lagged. Weekly CFTC data shows a buildup in yen and sterling shorts. Friday's higher than expected Canada CPI drew our GBPCAD Premium short closer to the final target. EURGBP and USDCAD remain in progress.
The implications of whether China's move on rates is the start or end of a program are enormous. In reports on Friday it was characterized as a quick liquidity move but an exclusive report from Reuters on the weekend said top officials were more open to further loosening because of disinflation fears.
While most central banks are essentially out of ammunition to fight economic malaise, China has a multitude of weapons it can still deploy. If they move in that direction, the commodity currencies in particular stand to benefit, especially AUD.