In a somewhat anticipated move, China’s PBoC made a cut to its one-year loan prime rate by 10bps, settling it at 3.45%. This is a slight deviation from the 15bps reduction that the majority of economists had forecasted. What stands out is that this marks the second reduction in this rate in just a span of three months.
However, eyebrows were raised when PBOC decided to keep its five-year LPR — the benchmark for most mortgages in the country — steady at 4.2%. This move defied expectations of a 15 bps cut by many market watchers. The unaltered five-year LPR is being read by many as a signal of Chinese banks’ hesitancy to compromise their rate differential margin. Such reluctance throws into sharp relief potential concerns about the effective transmission of PBOC’s policy decisions into the broader market landscape.
Furthermore, it stirs up conversations about the central bank’s capability to invigorate the property sector and the broader economy through monetary easing strategies. This narrative is all the more potent given that this decision on the one-year LPR came on the heels of an unexpected reduction in PBOC’s medium-term policy rate just a week earlier. To give specifics, PBOC had reduced the one-year medium-term lending facility rate by 15 basis points, bringing it down to 2.50% from its previous 2.65%.
Considering these rate adjustments, many financial experts are now projecting more proactive measures from the PBOC in the forthcoming months. This may encompass further rate trims as well as potential reductions in the reserve requirement ratio for banks.
NZD/USD pressing channel support, could it bounce from here?
In recent weeks, the antipodean currencies have encountered turbulent waters, contending for the title of the month’s poorest performers. Reserve Banks of both Australia and New Zealand are widely perceived to have reached the peaks of their ongoing tightening cycles. In contrast, ECB and BoE (and less certaintly Fed) seem poised for further rate hikes. Also, the broader sentiment, underpinned by belief that global interest rates may remain elevated longer than previously anticipated, has notably dampened risk appetites.
However, recent economic concerns stemming from China have played a pivotal role in the accelerated depreciation of these currencies in the last fortnight. China’s less-than-stellar economic recovery post its stringent Covid lockdowns, coupled with looming deflation risks and challenges in its property and finance sectors, have further intensified the pressure on the antipodean currencies. Additionally, PBoC milder than anticipated rate cut today further dampened sentiments towards these currencies.
Technically speaking, however, there is prospect of a near term bounce in NZD/USD, given that it’s now pressing a medium term channel support on oversold condition. Break above 0.5995 resistance will trigger a rebound to 55 D EMA (now at 0.6117). However, deeper decline and firm break of 100% projection of 0.6537 to 0.5984 from 0.6410 at 0.5857 could prompt downside acceleration to 161.8% projection at 0.5515, which is close to 0.5511 long term support (2022 low).