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China cuts rates – AUD/USD could start higher

The People’s Bank of China decided to cut the interest rates in the world’s No. 2 economy. The dramatic step by the economic giant comes as inflation figures fell short of expectations.

For Australia, this  Chinese stimulus is good news. For the RBA, that wants a weaker Australian dollar, this means trouble in balancing its policy.

China announced that the main  lending rate would be set at 5.1% from Monday, down from 5.35% beforehand. The depo rate is now 2.25% from 2.50%. The multiple for deposit rates is down from 1.5 to 1.3.

This comes after the headline Consumer Price Index rose to only 1.5% in April, below 1.6% expected but still higher than 1.4% in March. The Producer Price Index remained at -4.6%, as expected. Producer prices are negative for a very long time.

China is Australia’s No. 1 trade partner. Looser monetary policy in the economic giant means  potentially more demand for Australian commodities such as iron and copper.

AUD/USD could start the week with a Sunday gap – such moves have been seen in the past.


Yohay Elam

Yohay Elam

Yohay Elam: Founder, Writer and Editor I have been into forex trading for over 5 years, and I share the experience that I have and the knowledge that I've accumulated. After taking a short course about forex. Like many forex traders, I've earned a significant share of my knowledge the hard way. Macroeconomics, the impact of news on the ever-moving currency markets and trading psychology have always fascinated me. Before founding Forex Crunch, I've worked as a programmer in various hi-tech companies. I have a B. Sc. in Computer Science from Ben Gurion University. Given this background, forex software has a relatively bigger share in the posts.