AUD Unimpressed by Chinese Rate Cut

China was the focus of the weekend as the PBOC cut the lending, savings and deposit rates by a quarter-point. The required reserve ratio was left unchanged but the odds of a cut are rising. The move prompted speculation that the official Chinese manufacturing PMI would be soft but at 49.9, it was slightly better than the 49.7 consensus.

The lack of response from the Australian dollar has two facets. The first is that markets are starting to worry if things in China are worse than they appear with this move coming hot on the heels of a November cut. The Fed may know more than it's letting on; in Yellen's testimony she cited international weakness as a risk and the first country she mentioned was China. So rather than buying AUD on the stimulus, the market is worried about the Chinese economy.

Second is that AUD traders are reluctant to react with the RBA decision just over 24 hours away. The futures market implied pricing suggests it's a 50/50 decision and that will overwhelmingly be the AUD driver in the day ahead.

In the shorter-term, the RBA may look at the TD Securities inflation report for February. It's due at 0030 GMT and the previous reading was up 1.5% y/y. Yen traders will be focused on the Q4 capital spending data 20 minutes later. Capex is expected up a healthy 4.1% and give the BOJ some room to breathe.

Commitments of Traders

Speculative net futures trader positions as of the close on Tuesday. Net short denoted by - long by +.

EUR -178K vs -186K prior

JPY -48K vs -49K prior

GBP -22K vs -29K prior

AUD -63K vs -54K prior 

CAD -36K vs -33K prior

CHF -5K vs -6K prior

Specs are acting like they've sniffed out a second RBA rate cut after the soft capex data and jobs reports.