Australian dollar eyes PBOC rate cuts amid protracted China power woes

Asia-Pacific markets look vulnerable after Wall Street traders closed the week on the back foot, with equity losses accelerating on Friday in New York. The benchmark S&P 500 fell 1.21%, and the high-beta Nasdaq-100 (NDX) closed 2.38% lower. A large number of options, around $2 trillion worth, expired on Friday, likely bolstering volatility.

Sichuan province, one of China’s most populous, extended power rationing across the region amid extreme heat and drought. Factories and other industrial plants are to remain closed until August 25, extending the original order by five days. The protracted industry shutdown will likely add to the economic headwinds from sporadic Covid lockdowns and could even reverse some progress made on congested supply chains.

According to a Bloomberg survey, the People’s Bank of China (PBOC) is expected to cut its one and five-year loan prime rates today. Credit growth has been lackluster recently, likely underpinning the central bank’s commitment to easing policy. The PBOC unexpectedly cut several other lending rates last week. China’s property sector is another problem still looming over the economic powerhouse. AUD/USD fell 3.5% last week. Currency traders increased their net short position on AUD, according to the latest CFTC data.

An eight-day strike at the United Kingdom’s Felixstowe port started on Sunday, threatening to inflict further damage on global supply chains and adding to Europe’s price pressures. PMI readings for the United Kingdom’s services and manufacturing sectors are due. Analysts expect to see both gauges remain in expansion for July but fall from the prior month.

AUD/USD technical outlook

AUD/USD’s technical positioning doesn’t offer an optimistic view. The currency pair set a fresh August low last week, although the 61.8% Fibonacci retracement level provided some support but only after an already big move. The 50-day Simple Moving Average was broken shortly after RSI crossed below its midpoint. The MACD oscillator is also on track to cross below its own midpoint, another bearish sign.

AUD/USD daily chart

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