Beware of Change at the PBOC, Stevens Next

Opposing reports have been coming out of the PBOC and after the latest reports, we have an idea why. On Tuesday, the Aussie was the best performer while the Swiss franc lagged in a classic risk trade. RBA Governor Stevens speaks later. A new set of Premium Insights will be issued later tonight.

We were whipsawed by opposing news on China. The first reports said the PBOC didn't want to act to stimulate the economy in order to squeeze out some financial excesses. Just days later the PBOC pumped 500B yuan in liquidity into the five largest banks.

The reasons for the opposing reports might now be more clear – there's a power struggle at the PBOC. The WSJ reported today that long-time Governor Zhou may be replaced by someone more open to stimulating the economy and less in favor of financial reform.

The news helped turn around commodity currencies midway through the day.

It could do much more than that if it means China will continue to stimulate the economy and demand 7.5% growth. Down the road, that sets China up for a hard landing but in the short term and for the remainder of the year it could be a fantastic boost to commodities currencies. A new set of Premium Insights will be sent to subscribers shortly after this IMT.

We warn that the reports aren't confirmed and it's far too early to tell who will replace Zhou but it bears close watching.

Up next, RBA Governor Stevens speaks in Melbourne at 0030 GMT. We'll watch out for comments on the Australian dollar and housing.