Commodity Dollars Accelerate Higher on China Stimulus

While markets were concentrated on the FED, the larger story that is gaining momentum is China’s economy, which has experienced weakness after the reopening from 3 years of coronavirus lockdowns. Concerns about a potential slowdown in the Chinese economy have been simmering for weeks, but the situation has started to change recently. Chinese officials have instructed banks to lower deposit rates, which has been followed by additional rate cuts this week, along with discussions of fiscal support.

The discussions around fiscal support are gaining momentum, with reports indicating that Beijing is planning significant measures to revive the economy. These measures may include infrastructure spending and more relaxed rules regarding property. As part of the stimulus efforts, China is considering issuing around one trillion yuan (approximately $140 billion) of special treasury bonds to assist local governments with their debt burden and boost business confidence, according to sources familiar with the discussions.

The anticipation of such moves from China has been providing support to the Australian dollar and commodities this week. In addition to these measures, there are plans to ease restrictions on purchasing second homes in smaller Chinese cities.

While there has been talk of stimulus being announced today, this report suggests that it could come in the next few days. The crucial question for the market is whether these rate cuts and fiscal measures are isolated actions or part of a broader trend of stimulus. It is increasingly appearing to be the latter, as officials become concerned about diminishing economic vitality in China.

NZD/USD has climbed above 0.62 from below 0.60, while AUD/USD has gained around 450 pips. The 20 SMA (gray) has been acting as support for this pair on the H4 chart, as shown on the chart above, which indicates that the pace of the uptrend is quite strong. So, we will try to buy the pullbacks lower on AUD/USD.

AUD/USD