PBoC Rate Cut Surprise Boosts Risk Appetite


(CN) CHINA CENTRAL BANK (PBOC) CUTS KEY ONE-YEAR BENCHMARK RATES BY 25 BPS (FIRST CUT SINCE DEC 2008); as speculated

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  • Cuts 1-year deposit rate by 25 bps to 3.25% from 3.50% prior; effective Friday 8th June
  • Cuts 1-year lending Rate by 25 bps to 6.31% from 6.56% prior; effective Friday 8th June
  • Allows banks to lend further at 20% below loan rate floor v 10% prior allowance
  • Lowers lending rate floor to 80% of benchmark rate
  • Raises upper ceiling of deposit rate to 110% of benchmark rate from 100% prior
  • The “prudent” monetary approach came into effect in December 2010 which replaced “”moderately loose” monetary policy. China has maintained a ‘Proactive’ fiscal policy since the inception of the 2008 financial crisis

(CN) China President Hu indicated that China will offer $10B in loans to Shanghai Cooperation Organization member states and the China Transport Institute indicated increased spending on its rail infrastructure.

(AU) AUSTRALIA MAY UNEMPLOYMENT RATE: 5.1% V 5.1%E; EMPLOYMENT CHANGE: 38.9K V 0.0KE; PARTICIPATION RATE: 65.5% V 65.2%E (highest since Nov 2011).

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How to interpret these headlines?

PBoC rate cut surprised the market today and it was released just one minute before the BOE (Bank Of England) Rate Decision, stealing the thunder away from the British and boosted market risk appetite sentiment.  Along with the surprise rate cut, China also has plans to stimulate 7 key areas of its infrastructure and are likely to support its market to endure the slow growth and in turn, help AUD to remain in demand, especially considering recent blockbuster Australian employment and GDP releases.  As a matter of fact, based on recent data, I believe AUD is no longer a SELL on Rally currency, but we may very well see more demand as global central banks race to depreciate their currency in order to boost competitive edges.

 

 

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About Henry Liu

My name is Henry Liu and I am a Forex Trader and Mentor. I help traders achieve consistent income trading Forex while spending less time trading. My focus in trading is a combination of Fundamental Analysis, Technical Analysis, and Market Sentiment. Far too many retail Forex traders concentrate on just one aspect of trading, technical analysis, and ignore everything else; it is my goal (and vision) to educate every trader on how to take advantage of news trading and become more balanced traders.

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Comments

  1. Katherine says:

    He Henry
    Moving forward, do you think GbP/Aud will be a buy or sell?

    • I think AUD is a BUY while GBP is neutral… so GBPAUD could be moving down, so a SELL… Of course, take this analysis with a grain of salt as always and use the right timing…

  2. Hello Henry,
    What do you think about the spike down on AUD/USD and AUD/JPY at around 1PM EST today? I know that big Ben was speaking, but I didn’t read in his report anything that would send $ racing across the market, except for the fact that he didn’t mention anything about QE 3, which I guess should be a good thing for the US$.

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