Australian dollar eyes PBOC rate cuts amid protracted China power woes
The People’s Bank of China (PBOC) is expected to slash two key lending rates and AUD/USD’s technical posture points to more losses after a big 3.5% weekly drop.
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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This information has been prepared by IG, a trading name of IG Markets Ltd and IG Markets South Africa Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
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