Morning View: PBOC RRR Cut. What Does it Mean?

April 20, 2015

PBOC RRR Cut. What Does it Mean?
On the back of a 0.5% cut in February, Sunday saw the People’s Bank of China cut their Reserve Ratio Requirement (RRR) by 1%, leaving it at 18.5%.

It is essentially a $1 trillion Yaun (or $208 billion) stimulus to the economy through the release of capital.

The RRR cut was larger than expected from the market and will look to boost the growth outlook of the Chinese economy. This is because it encourages banks to lend more with their new found liquidity.

This liquidity will find its way into the already strong Chinese equity market, with the AUD also being a beneficiary of potentially increased Chinese demand.

aumon1

As you can see, AUD/USD gapped up on the news, but pulled back. How sustained this rally will actually be is another thing. This move from the PBOC could be seen as reactionary and a big vote of no confidence in the Chinese economy.

On the Calendar Today:
We’ve just had the New Zealand CPI release, with the -0.3% number missing the -0.2% expectation but Asia will be all about the weekend’s Chinese news explained above.

A bit strange to see the RBA’s Stevens speaking during the US session. He’s currently in New York at the American Australian Association luncheon hosted by Goldman Sachs.

Monday:
NZD CPI

CAD BOC Gov Poloz Speaks
AUD RBA Gov Stevens Speaks

Chart of the Day:
This PBOC news doesn’t change the fact that the Aussie charts all still look very bearish.

AUD/USD Daily:
aumon2
Click on chart to see a larger view.

Price has bounced off the bottom that it tested 3 times, pushing it out of that downward channel. But a channel that steep cant last forever, and although it’s broken out, price still hasn’t made a new higher low or confirmed any sort of strength above that 80c psych level.

AUD/NZD Daily:
anmon1
Click on chart to see a larger view.

Likewise the AUD/NZD chart also doesn’t look very inviting for bulls.

Last week I posted an AUD/NZD short setup in our new Technical Analysis section of the Vantage FX News Centre, speaking about shorting into the zone marked with the green ‘x’. Price re-tested the level on news and was instantly rejected.

I still really like this setup, Chinese RRR cut or not.

Let us know what you’re watching or live Forex trading? Leave a comment below or mention @VantageFX on Twitter.

Dane Williams – @VantageFX

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