The People’s Bank of China (PBOC) cut rates on Sunday 10th May, the third cut in the past 6 months, lowering the one-year lending rate to 5.1%, down by 0.25% and the deposit rate also by 25bps to 2.25%. Furthermore, the ceiling on the deposit-rate was increased to 150% of the benchmark from 130%, a further easing measure. From a technical standpoint, this should have a positive effect on the AUDUSD spot FX rate, which has been displaying a more robust tone since late April.
AUDUSD Upside Risks
A Friday dip and bounce leaves underlying upside pressures from the strong post-RBA recovery effort, having then defended support at .7790/84 and more recently .7860/59.
We still see upside risks for May from the rally through .7938 that defined a base and the push above retrace resistance at .8062 that set a more bullish outlook.
For Today:
- The China rate cut sees an upside bias for .7968; break here aims for .8005, 8030 and maybe .8076.
- But below .7859 opens risk down to .7784, which we would look to try to hold.
Short/ Intermediate-term Outlook – Upside Risks:
- We see a more positive tone with the bullish threat back to the new recovery peak at .8076, then to .8137.
- Above here targets key levels at .8224/34 and .8295.
What Changes This? Below .7761 eases bull risks; through .7679 signals a neutral tone, only shifting negative below .7533.
Momentum: The 8-day RSI, short-term momentum has corrected from OB and aiming up, and we see scope to go higher this week.