ForexLive Asia-Pacific FX news wrap: China cuts rates

China Cup his
One-year prime lending rate (LPR) at 3.65% vs. 3.7% and five-year LPR at 4.30% against 4.45% on Monday.
The cuts in the LPRs were widely expected. A 10bp decline on the 1y was the expected consensus, not the 5bp decline delivered. A 10bp drop from the 5y was the expected consensus, not the 15bp drop delivered.

The greater reduction in the longer-term rate appears to be based on two reasons. First, the five-year rate is the most widely used for mortgages. With China’s struggling real estate market, a bigger than expected drop likely looks set to boost borrower confidence.

On the lower-than-expected one-year decline, one of the main concerns for the PBOC is capital flight out of the yuan into foreign currencies. For example, if the Federal Reserve raises rates and the PBOC cuts them, wouldn’t it make sense to move capital into the USD and out of the yuan? It’s not rocket science. A smaller reduction in the short-term rate makes capital flight slightly less likely, at the margin.

On the currency, the PBOC To cut
Earth the yuan is fixed on his
the weakest
(for CNY) since Septemberember

2020, but again without weakening it as much as expected.

Chinese rate cuts served to support local equities and Chinese proxy trades, such as the AUD.

AUD/JPY was a driving force today. AUD/USD added points to briefly trade above 0.6900. USD/JPY also rallied, moving above 137.40. The combined impact saw AUD/JPY higher on the session.

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