China

China announced a $586 billion stimulus package over the weekend.  The stimulus was in housing and infrastructure through 2010.  They also vowed to maintain a relatively loose monetary policy. 

The Olympic stimulus by the Chinese was enough to create a bubble in the commodity markets that benefited the AUDUSD and NZDUSD in particular.  Of course, returning to that type of buying would not be a benefit (slow and steady is more beneficial)  However, in a world economy starving for growth pockets the announcement is welcomed.  Not surprising copper and metals are up this morning.

Off the news AUDUSD and NZDUSD gapped higher.  The USDJPY and Yen crosses (GBPJPY, EURJPY,etc.) all benefitted.   As did the EURUSD as China relied on Eurozone exported goods in their pre-Olympic build up.   On the back of the weak employment statistics last Friday, the dollar may be under some pressure today.

Hang Seng down 5.5%.   Nikkei down 4%.  The JPY crosses rallied strong but came back off.  Clearly, the markets are very nervous. 

Says China is very firm on policy of keeping the US dollar as its main reserve currency.

 What does "main" mean?

Says China needs faster appreciation from the Yuan.  Says that by improving forex regime, it is in China's own best interest.  He adds that undervalued forex rate imposes negative externalities for other country producers and says that competition from China must be "fair".

The dollar got hit hard last night as China's top political advisor, Cheng Siwei said that China should diversify its 1.43 trillion FX reserves into buying strong currencies like the EUR.  Later Cheng clarified his statement and said he did not mean to say we should buy more EUR's, but did not elaborate.