China surprised with a weekend rate cut but the move failed to spark an Australian dollar rally ahead of tomorrow's RBA decision. Early-week market moves are minimal. Weekly positioning data showed a jump in Aussie shorts.
China was the focus of the weekend as the PBOC cut the lending, savings and deposit rates by a quarter-point. The required reserve ratio was left unchanged but the odds of a cut are rising. The move prompted speculation that the official Chinese manufacturing PMI would be soft but at 49.9, it was slightly better than the 49.7 consensus.
The lack of response from the Australian dollar has two facets. The first is that markets are starting to worry if things in China are worse than they appear with this move coming hot on the heels of a November cut. The Fed may know more than it's letting on; in Yellen's testimony she cited international weakness as a risk and the first country she mentioned was China. So rather than buying AUD on the stimulus, the market is worried about the Chinese economy.