Currency

Commodity currencies struggle after the PBOC leave rates unchanged


Will 2024 be the year that China turns the corner?

So far this decade has been a disappointment for Chinese growth but with the property market flushed out and inflation in China zeroed-out, hopes have built for some fiscal and monetary help this year.

The consensus today was that the PBOC would lower its medium-term (MLF) rate to 2.4% from 2.5%. However they left it unchanged in part due to worries about currency depreciation.

In turn, AUD/USD has fallen 35 pips today and NZD/USD is down 55 pips. The Canadian dollar has begun to follow as well, down 0.2%. The Australian dollar is now testing the lows of the year.

AUD/USD 2 hour chart

The good news is that we might not have to wait long for China to change gears. The PBOC meets again next Monday to decide on the Loan Prime Rate (LPR). The current rates are 3.45% for the one year rate and 4.20% for the five year. They also have the option to lower the reserve requirement ratio, or RRR, something a PBOC official hinted at last week.

The other driver of China worries to start the week is the Taiwan election. The pro-sovereignty party won with 40% of the vote with William Lai taking the presidency. They did lose their parliamentary majority though, which could lead to a coalition deal among opposition parties. For now though, any hopes of closer ties with China are on hiatus.



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