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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.