Stephen Innes
SPI Asset Management
PBOC
The Pboc set the new one-year loan prime rate at 4.25% right in line with consensus down from 4.31% previously and confirming the Pboc directed easing bias. USDCNH went 50 pips higher, but with no reaction in the swaps markets, USDCNH has reversed lower on the inline interest rate setting.
CNH
There was renewed USD buying interest in USDCNH yesterday, with the market likely expecting a more dovish PBoC. Swaps gapped lower yesterday but have since retracted, but the topside will also be capped by easing expectations. While the Pboc set the Yuan mid at 7.0454 vs 7.0509 taking some of the wind out for the CNH bears sails.
Risk
There’s a positive vibe in the markets this morning. Risk sentiment continues to thrive coat-tailing the positive backdrop of risk supportive trade headlines and the prospect of a deluge of monetary and fiscal stimulus.
However, since the litmus test for risk sentiment will be the outcome of the US-China trade talks, investors probably don’t want to race too far ahead of the current economic realities, which could temper bullish opinions.
RBA
The RBA said the board would consider further easing if evidence suggests it's needed, and that it's reasonable to expect an extended period of low-interest rates. The RBA also said it sees few signs of wage pressure or near-term CPI pressure. While not precisely the flight of the dove's and with risk sentiment thriving and a less dovish than expected RBA, the Aussie dollar is rallying as overextended short bets pare as the Aussie dollar high beta is on display today.
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