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US dollar slips after Fed rate cut, Bank of Japan doesn't stop yen ascent
[TOKYO] The US dollar fell against a broad range of currencies on Monday after the US Federal Reserve made another surprise interest rate cut and major central banks took steps to relieve a shortage of dollars and provide extra liquidity.
Pressure has been building on central banks to do something to restore calm to financial markets roiled by the deepening coronavirus crisis.
The US Federal Reserve cut rates to a target range of 0 per cent to 0.25 per cent on Sunday, US time, and said it would expand its balance sheet by at least US$700 billion in the coming weeks.
The Bank of Japan (BOJ) said at an emergency meeting it would buy more corporate bonds, commercial debt and set up a new corporate lending scheme, joining the stepped up global response to the respiratory disease that has spread from China to dozens of countries and claimed more than 5,800 lives.
Five other central banks cut pricing on their swap lines to make it easier to provide dollars to their financial institutions facing stress in credit markets.
Some analysts said the US dollar's decline was likely to be short-lived because the shortage of dollars in the global financial system meant there would be consistent long-term demand for the greenback in the spot market.
"The BOJ's measures will provide some help to corporate financing, but unless there are matching steps from the government, banks will be reluctant to lend," said Ayako Sera, market strategist at Sumitomo Mitsui Trust Bank in Tokyo.
"More companies want to hold their dollars in cash to facilitate payments, so if you hold dollars right now you have a big advantage."
The US dollar fell 1.2 per cent to 106.70 yen on Monday, widening its losses after the BOJ's decision.
The greenback also fell 0.4 per cent to US$1.2338 per British pound.
Against the euro, the US dollar was little changed at US$1.1126.
The US dollar eased 0.15 per cent to 0.9493 Swiss franc.
The Fed, the Bank of Canada, European Central Bank, the Bank of England, the BOJ and Swiss National Bank all agreed to offer three-month credit in US dollars on a regular basis and at a rate cheaper than usual.
The move was designed to bring down the price banks and companies pay to access US dollars, which has surged in recent weeks as the coronavirus epidemic spooked investors.
The Fed had already cut interest rates by half a percentage point on March 3 at an emergency meeting, the first emergency cut since the financial crisis in 2008, but that move failed to stem market volatility.
Sunday's rate cut was likely aimed at staving off what had the potential to be another volatile week in financial markets, analysts say. However, US stock futures still plunged and Asian shares fell, showing investors remain nervous.
On the China mainland, the yuan strengthened slightly to 6.9910 per US dollar.
CHINA, AUSTRALIA AND NEW ZEALAND MOVES
The People's Bank of China injected 100 billion yuan (S$20.26 billion) into financial institutions on Monday but left borrowing cost on its medium-term loans unchanged.
The move came minutes before data showed China's retail sales, industrial output and fixed-asset investment in January and February all tumbled.
The data reveal the scale of damage caused by the coronavirus and suggest other countries could be in the same situation.
Worries that travel restrictions and factory closures aimed at containing the coronavirus will cause a global recession have sent equities into a tailspin.
The rapid spread of the virus in Europe and the United States has rattled investors who previously thought those regions were shielded.
The Reserve Bank of New Zealand joined the global easing race with a rate cut of 75 basis points to a record 0.25 per cent, while the Reserve Bank of Australia (RBA) added A$5.9 billion (S$5.16 billion) to the banking system through market repo operations.
The RBA said on Monday it stands ready to purchase government bonds and will announce further policy measures on Thursday. There is lingering speculation the RBA will also cut rates at some point.
The New Zealand dollar fell 0.3 per cent to US$0.6039, while the Australian dollar fell 0.5 per cent to US$0.6157.