### Chinese Stimulus Boosts Risky Assets, Maintaining Long Position in Australian Dollar
#### By Top Investment Manager
The recent news of additional Chinese stimulus has injected optimism into the market, particularly benefiting risky assets and providing a solid reason to uphold a long position in the Australian dollar. Let’s delve deeper into the current market trends and how they are impacting currency pairs.
#### Market Update
– At 07:55 ET (11:55 GMT), AUD fell 0.3% to 0.6872, showcasing a slight decline on Wednesday but still holding strong with a close to 2% increase post the US Federal Reserve’s initiation of a rate-cutting cycle with a 50 basis-point reduction.
– Additionally, EUR fell 0.4% to 1.6288, marking a decrease of nearly 1% over the last week.
#### Analyst Insights
According to analysts at UBS, the market is heavily leaning towards the possibility of further 50bp Fed cuts this year, despite the Fed’s Summary of Economic Projections not aligning with that as a baseline expectation. This sentiment stands in contrast to other G10 countries where rate cuts are anticipated to be more cautious, delayed, or not expected at all.
#### Impact of Chinese Stimulus on Australian Dollar
– UBS’s previous forecasts did not include upside expectations from China, primarily relying on domestic Australian rates resilience.
– The recent monetary package announced by China to bolster property and equity markets has introduced an additional upside opportunity by fostering a divergence sentiment.
– The market’s pessimism towards China’s prospects has paved the way for a tactical rally in Chinese assets and commodities like iron ore, benefiting G10 beta currencies.
#### Future Outlook for Australian Dollar
– Despite initial reluctance from investors to hold the AUD due to concerns about weak China growth and pressured commodity prices, UBS believes there is potential for the currency to rally sustainably.
– The bank expects AUD to outperform on the crosses, with original targets approaching and a year-end call that is well within reach.
In conclusion, the recent Chinese stimulus has injected positivity into the market, particularly benefiting risky assets and influencing currency pairs like the Australian dollar. This development underscores the interconnected nature of global markets and the importance of staying informed on international economic trends for effective investment decision-making.