Australian and New Zealand Dollars Rise as China Cuts Interest Rates

The Australian and New Zealand Dollars outperformed following an unexpected round of PBOC interest rate cuts. China’s central bank cut rates for the sixth time in a year, lowering the one-year lending and deposit rates by 25bps to 4.35 and 1.5 percent, respectively. The reserve requirement ratio for all banks was also lowered by 50bps, with an additional 50bps reduction for select lenders.

Looking ahead, the chipper mood may struggle for follow-through as traders opt to withhold directional conviction ahead of Wednesday’s much-anticipated FOMC monetary policy announcement. While Janet Yellen and company are unlikely to begin stimulus withdrawal this time around, the tone of the statement accompanying the rate decision is widely expected to set the tone for December’s sit-down. If tightening in 2015 is truly on the agenda as many FOMC members have suggested, hawkish commentary setting the rhetorical foundation for liftoff may sink risk-sensitive assets.