China’s PBoC Decides on Loan Prime Rates

China’s PBoC Decides on Loan Prime Rates

The People’s Bank of China (PBoC) is set to determine the 1-year and 5-year loan prime rates (LPR) in an attempt to support the Chinese economy. Economists are predicting that the rates will remain unchanged at 3.45% and 4.20% respectively. While more accommodative measures could boost the Australian economy and increase demand for the AUD/USD, concerns about high debt levels might lead the PBoC to keep the rates unchanged.

China plays a vital role in the Australian economy, accounting for one-third of its exports. With a trade-to-GDP ratio above 50% and approximately 20% of the workforce in trade-related jobs, Australia heavily relies on international trade. A more favorable demand environment resulting from accommodative measures by the PBoC could improve trade terms and benefit the Australian economy.

Apart from the economic calendar, investors need to closely monitor any stimulus discussions or announcements from Beijing. The Chinese government’s actions and policies have a significant impact on global markets. Any hints of further stimulus measures could have implications for the AUD/USD and other currencies.

On Monday, investor attention will shift to the US CB Leading Index. Recent economic indicators have diminished expectations of a March rate cut by the Federal Reserve, indicating the resilience of the US economy. A decline in the CB Leading Index for December, following a 0.5% drop in November, could paint a different picture of the US economic outlook for 2024. Further declines in labor market and housing indicators could align with The Conference Board’s expectation of an impending recession.

Apart from the US CB Leading Index, near-term trends for the AUD/USD will be influenced by private sector Purchasing Managers’ Index (PMI) data, US inflation numbers, and China’s stimulus plans. Strong service sector activity in the US and steady inflation could lean towards a divergence in monetary policy favoring the US dollar. These factors will have a bearing on the AUD/USD exchange rate.

Technical analysis of the AUD/USD reveals a bearish outlook as it remains below both the 50-day and 200-day Exponential Moving Averages (EMAs). This indicates a negative bias in price movements. However, a break above the resistance level at $0.66162, coupled with a move through the 200-day EMA, could lead to a bullish momentum for the currency pair. Bulls would then target the 50-day EMA and the $0.66500 handle.

A fall below the $0.65500 handle could trigger a test of the $0.64900 support level and trend line. Technical analysis suggests that the AUD/USD has further downside potential, with a 14-period Daily Relative Strength Index (RSI) reading of 40.33 indicating a possible break below the $0.65 handle and entry into oversold territory.

The decision by the PBoC regarding the loan prime rates will have significant implications for the Australian economy and the AUD/USD exchange rate. While a more accommodative approach could support economic growth, concerns about debt levels may hinder the PBoC from making any changes. Additionally, investors should closely monitor stimulus discussions from Beijing and the US CB Leading Index, as they could provide insights into the future direction of both economies. Private sector PMIs, US inflation numbers, and China’s stimulus plans will also influence the AUD/USD exchange rate in the near term. Technical analysis suggests a bearish outlook for the AUD/USD, although a breakout above key resistance levels could change the momentum.

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