PBOC Pledges More Monetary Policy Support, Risk Switch Flicked To On

The PBOC soothed the nerves by vowing to increase its support for the economy via monetary policy tools and promote healthy and stable development of financial markets. Risk sentiment gradually firmed as a result, with U.S. e-mini futures moving into the green.

• Antipodean currencies staged a comeback as the broader risk backdrop improved, with regional liquidity boosted as Australia and New Zealand returned from holidays. With participants already awaiting the release of Australian CPI data on Wednesday, AUD/USD overnight implied volatility printed a fresh multi-week high.
• Safe havens lost their initial appeal, even as the yen outperformed in early Tokyo trade, which allowed USD/JPY to show at its worst levels in a week. Japan FinMin Suzuki reiterated that officials are watching FX moves with "vigilance," but also denied last week's report of his alleged talks with U.S. Tsy Sec Yellen on a joint currency intervention. Separately, former MoF FX czar Watanabe told BBG that the government likely does not intend to intervene now.
• The greenback was the main casualty of newly reduced demand for safer assets. It underperformed all of its major peers, while the dollar index (DXY) extended its pullback from yesterday's cycle highs.
• Offshore yuan took a hit as the PBOC fix fell virtually in line with expectations, indicating the central bank's reluctance to use this tool for pushing back against redback depreciation. It regained poise as the session progressed, with participants mulling PBOC comments. Spot USD/CNH plunged into negative territory, which sets it on track to snap a five-day winning streak.
• U.S. Conf. Board Consumer Confidence, new home sales & flash durable goods order as well as comments from ECB's de Cos & Villeroy will provide interest going forward.