Investors continue wrestling with the implications of last week’s surprise rate cut by the Bank of Japan. The yen is little changed against the dollar, near its 200-day moving average (~JPY121.50). The euro moved from the upper end of its two-cent range last Thursday to the lower end on before the week. The absence of follow through selling appears to have prompted some short-covering. The $1.0880-$1.09 area may stymie the upside. 

Softer Chinese data and a pullback in oil prices are weighing on the dollar-bloc currencies.  The Canadian dollar is the weakest of the majors, losing a little more than 0.5%. The Australian and New Zealand dollars are off a little more than a quarter of a cent. The official Chinese manufacturing and service PMIs were weaker than expected at 49.4 and 53.5 respectively. Ironically, the Caixin manufacturing PMI was stronger than expected, rising to 48.4 from 48.2.The consensus had expected a small decline. 

The onshore yuan still appears to have been re-pegged to the dollar, but is was the first session in seven that the PBOC set the fixing (central reference rate) slightly weaker for the yuan against the dollar. The central bank continues to flood the banking system with liquidity ahead of the next week’s extended holiday.China’s stocks continue to trade heavily, with the Shanghai Composite losing 1.8%.However, the co-movement with other equity markets in the regions has slackened.Not only did the Nikkei advance 2%, but Taiwan, Korea, Australia and Indonesian markets advanced today.  The MSCI Asia-Pacific Index rose 0.9%. 

Oil prices are snapped a four-day advance. The weekend press continued to cast doubts speculation that OPEC and Russia could reach an agreement to cut output. A Bloomberg survey found expectations that the oil cartel increased output in January above and beyond what could be accounted for by Indonesia, who rejoined the OPEC.