Expect speculation about stimulus into the weekend
The last time the PBOC cut rates was on June 27, a Saturday. The time before that was April 18, a Saturday. The time before that was Feb 28, which was, you guessed it, a Saturday.
The PBOC makes its moves on the weekend and most analysts expect a cut some time this quarter.
If you look at the times between recent rate cuts, we're in the window of action already. The obvious reaction would be to buy the Australian dollar but the obvious move is often the wrong one. For years, buying AUD was the right move but this year, rate cuts have led to speculation the economy is weakening. The Feb and April rate cuts were especially hard on AUD. The June move provided a two-day bounce but AUD/USD later gave way to fresh lows.
AUDUSD with PBOC rate action days highlighted
What to do if the PBOC cuts
I believe it will be viewed as a sign of desperation and reinforce growing beliefs about big trouble in China. That will mean AUD selling. At this point, PBOC officials should know it will create that kind of reaction but at this point, the PBOC shouldn't be trusted to do the smart thing.
Carefully watch the Shangahi Composite in Asia-Pacific trading today. It's more likely to rise on rumours of rate actions. I expect the chatter will do the rounds.
