China cuts, but markets remain worried
The ongoing woes in China remained front-and-centre yesterday with poor economic data and a series of rate cuts illustrating the problems as the world’s second-largest economy tries to recover from last year’s pandemic lockdowns.
Chinese data continued to disappoint after last week’s poor trade, inflation and loan growth data. Yesterday, industrial output missed forecasts, at 3.7% in annual terms versus 4.4% expected, while retail sales also missed sharply, up only 2.5% in annual terms versus 4.5% expected.
The People’s Bank of China took action yesterday to provide support to the struggling Chinese economy, with a cut in its one-year medium-term lending facility (MLF) from 2.65% to 2.50%. The PBOC also cut other interbank lending rates and injected CNY204b (around USD30b) into repo markets.
The cuts followed an earlier series of policy loosening in June but had little benefit to markets with the benchmark Shanghai Composite flat after nearing year-lows earlier yesterday.
Aussie at new lows
The worries around China saw a savage reaction in the Australian dollar with the AUD/USD falling 0.5% and hitting new nine-month lows overnight.
The Aussie was weaker in most other markets with the AUD/EUR and AUD/JPY both down 0.5%, while AUD/GBP lost 0.7%.
In Asia, the Chinese yuan led the losses, with the USD/CNH up 0.6% as it hit the highest level since November and closed in on all-time highs.
The USD/SGD gained 0.2% as it hit the highest level since December.
RBNZ due
In today’s session, the focus will be on the Reserve Bank of New Zealand decision due at 12.00pm AEST.
While markets see a less than 5.0% chance of a hike, the more important part of the decision will be the accompanying policy statement. Markets believe the RBNZ is at the end of this rate-hiking cycle – with 20bps of cuts priced in by November next year.
With inflation turning rapidly in NZ, any further signs the RBNZ is no longer considering rates hikes could weigh on the NZD after today’s decision. The NZD/USD was down 0.4% overnight, near nine-month lows, ahead of today’s decision.
Aussie, CNY at new lows
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 14 – 18 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.
