Dollar extends gains as investors analyze China’s stimulus plans

The dollar extended its gains in early Monday trade in Asia as a holiday in Japan sapped liquidity, allowing markets to focus on China’s somewhat disappointing weekend stimulus announcements.

The euro was down 0.13% at $1.0922 and the pound was down about 0.2% at $1.3043. The dollar was flat at 149.20 against the Japanese yen.

The dollar index was at 103.10, up a touch and off last week’s peak, the highest since mid-August, as the Federal Reserve eased bets on more jumbo rate cuts at its remaining meetings this year.

Ahead of the onshore market opening, the yuan was down more than 0.2% against the dollar, while the Aussie, whose fortunes are closely tied to China’s, was down 0.16% at $0.67385.

China said on Saturday it would “significantly increase” government debt issuance to offer subsidies to low-income earners, support the property market and recapitalize state banks as it pushes to revive sputtering economic growth.

Without elaborating on the size of the fiscal stimulus being prepared, Finance Minister Len Fon told a press conference that there would be more “counter-cyclical measures” this year.

“Markets are likely disappointed that China’s finance ministry has not unveiled concrete additional stimulus,” Richard Franulovich, head of FX strategy at Westpac, said in a note.

“The weekend press briefing largely reinforces our existing expectations that China’s policy pivot is worth a 3-4 cent lift once the Australian dollar is pegged, about half of which has already been devalued.”

Further moves are unlikely, he said, until progress is made in addressing excess housing, local government debt and demographic challenges as China’s population ages.

The yuan is down 0.9% against the dollar since Sept. 24, when the People’s Bank of China launched China’s most aggressive stimulus measures since the pandemic.

The CSI300 index has broken records for daily moves and is up 16% overall. But stocks have wobbled in recent sessions as initial euphoria about economic stimulus gave way to concerns about whether policy support will be strong enough to revive growth.

“More thoughtful and targeted action may require more time,” said Christopher Wong, currency strategist at OCBC in Singapore. “But even those moves need to come quickly as markets eagerly await them. Over-expectations vs under-delivery will result in disappointment…”

Currency movements in major markets were soft last week. The yen and euro both fell about 0.3%, sterling fell 0.4% and the dollar index gained 0.4%.

US Treasuries are unlikely to provide much lead on Monday, as both Japanese and US markets are closed for the holiday.

Last week’s US data showed slightly warmer-than-expected consumer inflation but also higher weekly jobless claims left intact expectations for the Fed to cut rates by 25 basis points in November and December.

Traders now have Thursday’s retail sales and jobless claims data in the United States on their radar.

Fed Governor Christopher Waller speaks later on Monday. He has been one of the voices supporting a bigger rate cut because he is now concerned that the pace of price increases is undershooting the Fed’s target.

The New Zealand dollar was down 0.15% at $0.61, after a 0.8% drop last week after the central bank cut rates by half a point and hinted at more cuts to come.

Singapore’s central bank kept its currency-based monetary policy steady on Monday.