Lending Association

Swiss rate cut pressures markets

Chinese shares have slumped, as has the Hong Kong market. Also, the Chinese currency has slumped and has had to be supported by government banks. A surprise interest rate cut by the Swiss National Bank (SNB) has pressured markets.

Gold had surged to record highs above $US2,200 an ounce on Thursday after the Federal Reserve maintained its outlook for at least three interest rate cuts in this year, while Wall Street shares rose as well.

But out of the blue the SNB produced a rate cut of 0.25 per cent to 1.50 per cent and rattled everything. This saw the greenback rise. The Aussie dollar was down 0.6 per cent in late Friday trading and the yield on US bonds slid to 3.24 per cent, down more than two basis points in out-of-session dealings in Asia.

Traders were shaken by a combination of the Fed’s reiteration of its guidance for up to three rates cuts this year, a dovish tone to the Bank of England post meeting statement (hinting that a rate cut may not be far away) and then the SNB cut — the first by a western central bank.

The ASX lost ground, ending down 11 points for the session — but it was down 38 points earlier.

The Hong Kong market’s Hang Seng index fell more than 2.3 per cent, and mainland markets were in the red as well.

The biggest move was the slump by China’s yuan, which fell below the 7.2 to the US dollar level, long seen as a rate which the government defends.

Reuters reported Friday afternoon that major state-owned banks were seen selling dollars on Friday in an attempt to arrest weakness in the yuan after it slumped to the lowest level in more than four months.

Chinese state banks quickly stepped into the market to actively sell greenbacks to support the yuan. It dipped under the important 7.2 per dollar level to lows of 7.24, the sources said. It bottomed out at 7.2399 yuan to the dollar, according to Reuters.

The onshore yuan trimmed losses and last traded at 7.2228 per dollar Friday afternoon.