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2 Mar 2015
China cuts its 1-year lending rate by 25 basis points to 5.35% - Investec
FXStreet (Barcelona) - Jonathan Pryor, Head of FX dealing at Investec, summarizes the market reaction post PBoC’s decision to cut its 1-year lending rate by 25 basis points, and further comments that with RRR rate cuts likely in the future, the divergence in policies will keep the outlook positive for USD.
Key Quotes
“The big news this weekend was China announcing a second interest rate cut of the year, and the market seemed a little nervous. In further signs the world's second largest economy continues to slow (they noted the rate cut was due to falling commodity prices causing deflationary pressures), the market took a rather bearish view.”
“Instead of risk assets picking up as China stimulated their economy, as they may in turn resume buying raw materials for production, we instead saw US Dollar safe haven buying as the market was perhaps uneasy that China needed to cut rates again so quickly.”
“Particularly most notable from an FX standpoint was the usual benefactor, the Australian Dollar, actually traded lower in Asian trade after the announcement.”
“Although China may hold rates for now, it is likely to continue to lower Reserve Requirement Ratios in its banking system to pump more money into its economy.”
“Yet another economy cutting interest rates as the US move to raise them - diverging policy will continue to favour the US Dollar.”
Key Quotes
“The big news this weekend was China announcing a second interest rate cut of the year, and the market seemed a little nervous. In further signs the world's second largest economy continues to slow (they noted the rate cut was due to falling commodity prices causing deflationary pressures), the market took a rather bearish view.”
“Instead of risk assets picking up as China stimulated their economy, as they may in turn resume buying raw materials for production, we instead saw US Dollar safe haven buying as the market was perhaps uneasy that China needed to cut rates again so quickly.”
“Particularly most notable from an FX standpoint was the usual benefactor, the Australian Dollar, actually traded lower in Asian trade after the announcement.”
“Although China may hold rates for now, it is likely to continue to lower Reserve Requirement Ratios in its banking system to pump more money into its economy.”
“Yet another economy cutting interest rates as the US move to raise them - diverging policy will continue to favour the US Dollar.”