AUD/JPY heads toward 89.00 mark, as the sentiment took a U-turn on the liquidity crisis
- AUD/JPY rises on central banks' coordinated liquidity-boost effort.
- The swap line is the new lifeline amid liquidity concerns.
- Market optimism grows as the central banks tackle turmoil.
AUD/JPY took a bounce during early Asian hours in the wake of weekend optimism on the liquidity front. The risk proxy is up around 0.35% as of now, which is helped by the globalized effort from the top central banks to ease some liquidity severity.
During the weekend, the Federal Reserve (Fed), European Central Bank (ECB), Bank of England (BoE), Bank of Japan (BoJ), and Swiss National Bank (SNB) all came together to provide a liquidity lifeline known as "swap line" for those commercial banks who are struggling with any sort of liquidity issue. The market cheered this and high beta currencies surged, due to how quickly they addressed the issue and took action.
This is the second instance of the introduction of the swap line, which was first introduced during the COVID pandemic. It is an operation by which the central bank provides US Dollar liquidity to commercial banks on a shorter maturity; this time it is up to seven days. This helps these commercial banks smoothen their day-to-day operations.
Some earlier comments came from Reserve Bank of Australia Assistant Governor Kent, and he is probably the first central banker who stated to take into account this liquidity-led financial turmoil while addressing the interest rate decision.
A few central bank rate decisions are due this week and It's important to see what are their official stance on this issue. The first in line is the People's Bank of China (PBoC). The said bank is on the easing side, contrary to others, and may surprise the market by taking some extra measures if the underlying situation requires it.
On the Japanese front, more financial aid in the form of subsidies is likely to be injected into the economy to combat the higher prices. That said, the temporary subsidy for regional revitalization is expected to add 700 billion Japanese yen.
Levels to watch