The Australian and New Zealand dollars struggled near multi-week lows on Tuesday after China’s unexpected move to cut several key interest rates. Meanwhile, the U.S. dollar remained relatively unchanged as it awaited new economic data and central bank meetings.
On Monday, China surprised global markets by cutting major short and long-term interest rates, marking its first such broad move since last August. This action signals China’s intent to boost growth in the world’s second-largest economy.
The Australian dollar was trading at $0.6643 early on Tuesday, and the New Zealand dollar dipped 0.01% to $0.5979. Both currencies, often used as liquid proxies for the Chinese yuan, remained flat after significant drops in the previous session following the news.
“For the Aussie and the kiwi, they tend to be reflecting a more liquid and free expression in terms of the realities currently facing the Chinese economy,” said Rodrigo Catril, senior FX strategist at National Australia Bank. “The easing coming from the PBOC yesterday is not huge in terms of magnitude, but it does signal that willingness for the PBOC to support the economy alongside the fiscal side, and that probably plays to the view that there will be some tolerance for a little bit of weakness in CNY.”
The offshore yuan last stood at 7.2973 per dollar.
In the broader market, currency moves were subdued as traders looked ahead to central bank meetings in the U.S. and Japan next week.
The euro eased 0.02% to $1.0889, while sterling similarly fell 0.02% to $1.2928. Against the yen, the dollar edged 0.14% lower to 156.79. The dollar index remained flat at 104.29.
The market reaction to U.S. President Joe Biden’s decision to bow out of the election race over the weekend was muted, though there was some unwinding of the so-called Trump trade, which has seen the dollar and U.S. Treasury yields ease a touch, while bitcoin’s rally hit a pause.
“I think certainly the U.S. politics, as we get closer to the November election, will become a greater source of volatility for markets,” said NAB’s Catril. “There’s still a lot of water to go through in terms of what the candidates have to offer and also how the polling may change as well. And then of course, getting a bit more clarity in terms of what the key policies will be and priorities will be, will be very important for markets.”
In cryptocurrencies, bitcoin fell 0.7% to $67,665, retreating from an over one-month top hit in the previous session.
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