The rally in the Australian dollar has been front-running China stimulus for two weeks so it’s not a big surprise to see a ‘sell the fact’ trade today, especially with worries about quarter-end selling in global equities also creeping in.
China delivered cuts to the 1-year and 5-year loan prime rates today, as expected but the market wants some kind of bazooka on the fiscal side as well. It’s also not clear whether these are one-off rate cuts or part of a cycle.
For now, the mode is to retrace the recent gains in AUD/USD and retest the old range top. That’s a reasonably-large move today and I’d expect buyers to pick away, especially with US equities holding up surprisingly well so far (S&P 500 futures down 13 points).
I wonder here if the playbook from the market will be to kick and scream to get what it wants from China. That game has worked plenty of times with the Fed in the past but it’s untried with China.