Monday, December 27, 2010

China's Surprise Rate Hike Hurts Aussie, Commodities

The Australian dollar and commodity prices slid on Monday following an interest rate hike by China's central bank over the Christmas weekend, but volumes were light due to holidays in the final week of 2010. 
100 Yuan
James Hardy | Photo Alto RF | 

Asia shares also tended lower in modest trade, with the MSCI index of Asian stocks outside Japan trading 0.12 percent down, dragged by a 0.3 percent drop in South orea's KOSPI. Other major markets such as Hong  Kong and Australia remained closed for the holidays. 
On Saturday, the People's Bank of China raised rates by 25  basis points, the second rate rise in just over two months,  part of a series of measures designed to combat inflation  which hit a 28-month high of 5.1 percent in November. 
China's move was a "fitting end to the year and great  prelude for 2011 given the wide span of financial reforms  expected in China", said Geoff Howie, sales and markets  strategist at MF Global in Singapore. 
"Expect Asian markets to be tempered into the last trading  week of the year. The cautious tone and lower turnover this  month compel the case for further consolidation," said Howie.
The Australian dollar slipped in early trading  on expectations that more tightening by China could prompt  investors to sell the Aussie after the year-end break. The  currency was down 0.1 percent in thin trade with many key  centres in the region, including Sydney and Hong Kong, on  holiday.
Flag of the People's Republic of China
Eriko Koga | The Image Bank | 
Flag of the People's Republic of China

Crude oil futures fell, easing towards $91 a  barrel while U.S. wheat futures slid 0.7 percent, falling from  a 4-1/2 month top, while soybeans and corn also lost ground.
But losses in the grain markets were limited by bullish  fundamentals of tightening supplies and strong global demand. 
Spot gold eased 0.4 percent.
China's key stock index was trading 0.5 percent  higher with banking and insurance shares rising on  expectations that higher benchmark rates will support their earnings. Japan's Nikkei  rose 0.5 percent, extending its  recent over performance versus other Asian markets. The Nikkei  is up about 10 percent since then versus a 2.7 percent rise  for the MSCI Asia ex-Japan  index. 
S&P futures fell 0.4 percent.