Equities, commodities, and commodity-linked currencies all fell in Asia on Wednesday after Beijing raises banks' reserve requirements. The PBOC said it will increase commercial lenders' reserve requirement ratios (RRR) by 50 basis points as of Jan 18, making China one of the largest economies to start rolling back the emergency policies used to combat the crisis fallout. The central bank raised the yield on its regular sale of one-year bills by about 8 basis points, the first increase in 20 auctions and higher than forecasts for a rise of 4 basis points.
High-yielding commodity currencies such as the Australian and New Zealand dollars both took a hit following the moves by China -- a major importer of commodities. Separately, the yen strengthened on short-covering as investors unwound trades linked to a broad range of higher-yielding assets.
Fears that China is getting ready to use more forceful measures to cool the economy weighed on all capital markets. The fears that growth-thwarting interest rate hikes are on the way pressured forex traders to hedge against a potential slowdown in Chinese demand, with exporters facing the brunt of the selling.
The commodity weakness did not lead to a strengthened dollar, however. In fact, GO Forex traders should watch the EUR/USD closely as technical indicators are suggesting further gains in the euro, with good likelihood of a move past $1.47 in the short term.