Chinese rate cut has limited effect on AUDUSD

Chinese easing is ramping up it seems. That they cut at all is perhaps less of a surprise. The timing of it is, after CPI rose.

Usually RRR cuts or PBOC monetary policy talk has always come with mild language on the economy, but that changed over the rate cut with the PBOC saying that China faces "relatively large downward pressure". Usually we hear that China is facing 'some' pressure and that growth is still likely to stay within their forecast range. Even Friday they said that the economy was just facing some short term downward pressure

This move shows that maybe the Chinese economy is heading for a bumpier ride than the PBCO have been letting on about. That may not come as a surprise to most of us

For AUDUSD it means a whole lot more. Where easing headlines would give the aussie a temporary shot in the arm, now the shock factor has worn off and the aussie may have to wake up to the fact that a continued easing path in China means that things are going to get worse before they get better.

With China trying to pump its domestic economy the usual 'what's good for China is good for Australia' line is perhaps going to take a back seat. Trading wise that's potentially very dangerous for the AUD/USD trade and could add some real downside pressure

AUDUSD rose on Friday after the PBOC brought out their quarterly report. The market may have read in some scope for easing. The price action (or lack off) at the market open tells the only story you need to know

We're still going sideways in a pretty tight range with the short term emphasis on the upside rather than the downside, for now

AUDUSD daily

If Chinese growth worries start ramping up again and the PBOC cut again in short space of time, we could see AUD starting to take some flack. If the US manage to turn around the Q1 weakness that's going to be another big feather in the bears bow. Add in the RBA happy to cut rates and it's hard to make a case for being long the pair.

At the moment the market is happy to remain in 'wait and see' mode. At the very least we still have the defined range in place so can still play the edges until they break. A move towards 0.8000/0.8050 and possibly to the 38.2 fib at 0.8246 look the best points to scale in shorts, and if you stretch the trade out to resistance at 0.8300/35, a break there will be the time to re-assess

For the long trade, 0.7850 is a short term level worth watching followed by 0.7700. Anywhere down near the March lows will have the bulls sweating and a break would likely have more than a few throwing in the towel