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The Chinese finally did it  – they raised the interest rate in “the hide of the night”, during Christmas. This is likely to hurt the Australian dollar, and could endanger parity. Update on this sneaky move.

After avoiding this move for a long time, the Chinese tightening finally becomes serious. China’s authorities have raised the reserve ratio requirement from their banks several times already, and warned that monetary policy will change from “loose” to “prudent”.

But it was very hard for them to make the actual move on the more important tool – the interest rate. After inflation jumped above 5%, in a report released a few weeks ago, also on the weekend, it seemed clear that it would happen very soon. And they still took their time. It happens when the world isn’t tuned to economic news, and before a very light week of trading, before New Year’s Eve.

Here are the new rates, from Bloomberg:

The benchmark one-year lending rate will rise by 25 basis points to 5.81 percent and the one-year deposit rate will climb by the same amount to 2.75 percent, effective tomorrow, the People’s Bank of China said in a one-sentence statement on its website today.

AUD/USD Impact

The previous rate hike was back in October, and it  sure hurt the Aussie.

The Australian dollar has become very sensitive to any news from China, its main trade partner, and especially to rumors about the rate hike. But as it didn’t happen,the Aussie made its way quietly to parity, and managed to close the week above this level.

AUD/USD now has support at parity, followed by 0.9915 and 0.9840. Above, 1.0080 and 1.0180 are resistance. For more technical levels, see the AUD USD forecast.

A fresh outlook for the events and an updated technical analysis will be published during the weekend. Stay tuned.