The Australian dollar is coming off a rough week with losses of 1.45% and the downtrend has continued on Monday. AUD/USD is trading at 0.6664 in the European session, down 0.30% on the day at the time of writing. The Aussie climbed 1.9% in the first two weeks of July but has reversed directions and given up all these gains. There are no data releases out of Australia or the US today.
China surprises with rate cut
China surprise the markets by cutting its benchmark lending rates on Monday. The one- year loan prime rate (LPR) was lowered to 3.35% from 3.45% previously and the five-year LPR to 3.85% from 3.95%.
The Chinese central bank made the move in order to boost the economy, which continues to struggle.
China’s GDP slipped to 4.7% in the second quarter, down from 5.3% in the first quarter and below the market estimate of 5.1%. The Chinese government held a plenum last week and released a policy document on its plan to improve the economy. However, the policy update did not contain any concrete plans to deal with major economic issues, such as the property crisis, deflation, and weak consumer confidence.
Will China’s interest rate cuts succeed in kick-starting the sputtering economy and boosting demand? If so, it would be good news for the Australian economy, which is highly dependent on exports to China.
The Federal Reserve is sounding more upbeat about a rate cut, although Jay Powell and his colleagues have been careful not to be specific about the timing of such a critical move. The markets are more and more confident that the Fed will lower rates in September, with a 91% likelihood, according to the CME FedWatch.
AUD/USD Technical
- There is resistance at 0.6718 and 0.6756
- 0.6647 and 0.6609 are the next support levels
