PBOC cuts by less than expected
Key regional FX markets like the Australian dollar and Chinese yuan were weaker on Monday after a smaller than expected rate cut from the People’s Bank of China.
While the one-year rate was cut by only ten points to 3.45% – versus expectations for a 15-basis point cut – the PBOC also didn’t cut the key five-year rate at all.
Financial markets had also expected a 15-basis point cut in the five-year rate as well.
Major markets across the region were disappointed with the Australian S&P/ASX200 falling 0.5% while the Shanghai Composite lost 1.2%.
Aussie, CNY weaker initially, but later rally
The Australian dollar was lower on the China rate news but remained above the recent nine-month lows. The Aussie later recovered.
The Chinese yuan also fell but later recovered some of these losses.
In other markets, the US dollar was mostly stronger, as markets waited for update commentary from Federal Reserve chair Jerome Powell at this week’s Jackson Hole symposium.
Japanese inflation in focus
Today’s key release is the Bank of Japan’s core inflation reading due at 3.00pm AEST.
Japanese inflation has been steadily creeping higher but the BoJ has been reluctant to tighten policy to contain inflation – instead saying it expects inflation to fall in the second half of the year.
This view will be tested with annualized core inflation expected to fall from 3.0% in June to 2.9% in July. A stronger number could boost the Japanese yen and pressure the USD/JPY – potentially driving USD weakness in today’s session.
PBOC disappointment hits markets
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 21 – 26 August
All times AEST
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
