With China and the United States going in opposite directions on monetary policy, investors will need to identify how best to benefit from this. In the currency space, this will mean not only focusing on interest rate differentials but also factoring in the impact of commodity price moves. First, the US Federal Reserve has received the green light from President Joe Biden to tighten monetary policy (not that it needs White House approval). “Given the strength of our economy and pace of recent price increases, it is appropriate – Fed chairman [Jerome] Powell has indicated – to recalibrate the support that is now necessary,” Biden said last week. How far they interest rates rise remains to be seen, but the direction is clear. The trajectory of monetary policy in China is equally clear. But the People’s Bank of China is going in the opposite direction: the PBOC trimmed its benchmark lending rate for the second month in succession last Thursday while also cutting a mortgage reference rate for the first time since 2020. Having cut the one-year loan prime rate in December , on which most new and outstanding loans are priced, to 3.8 per cent from 3.85 per cent, the PBOC lowered it again, to 3.7 per cent, at the January fixing. As for the five-year loan prime rate, a reference rate for mortgages, the central bank trimmed that to 4.6 per cent from 4.65 per cent, the first adjustment since April 2020. Aside from providing general support for the Chinese economy , as investors recognised on the day, these loan rate cuts may be particularly beneficial to China’s beleaguered property sector. Indeed, the Hang Seng Mainland Properties Index, which tracks the performance of mainland property developers traded on the Hong Kong stock exchange, rose by 4.6 per cent to close at 4,640.74 points following the PBOC’s moves. From a currency perspective, rising US interest rates and lower Chinese rates, which narrows the yield differential that has long been in the renminbi’s favour, might make the renminbi seem less attractive than the US dollar to investors, but China’s currency held its own after the two loan prime rates were trimmed. Foreign exchanges may well have concluded that, on balance, and given China’s economic heft, it might be unwise to reduce exposures that favour the yuan, on the basis that future Fed hikes might already be baked into the US yield curve and incremental tweaks to Chinese monetary policy don’t themselves justify an overreaction. There is also the fact that the China-US trade balance remains heavily skewed in Bejing’s favour , even though the Biden administration has kept in place Trump-era tariffs on goods imported from China that were supposed to remedy that imbalance. The foreign exchanges can do the maths. Chinese exporters need to convert US dollar-denominated receipts into renminbi. The bigger China’s trade surplus with the US, the more yuan that, by definition, have to be purchased for greenbacks by Chinese exporters. There is also the argument that with many US dollar-denominated commodity prices trending higher, Beijing will wish to see the yuan stay relatively strong as a bulwark against imported inflation. Is our energy-hungry world taking the nuclear option? With regard to commodities, soaring global energy prices have in recent months helped explain the outperformance of oil-producing nations’ currencies, such as the Norwegian krone, but other moves may be afoot. Though an interest rate hike by the Reserve Bank of Australia (RBA) still seems some months away, the fall in Australia’s December jobless rate, to its lowest level since 2008, underpins the idea that the RBA is now on a tightening trajectory. Additionally, while recognising that Beijing-Canberra relations remain strained , Australia will continue to be a key global exporter of raw materials such as iron ore and thermal coal. While also acknowledging that China’s zero-Covid policy is not without economic costs , once the Lunar New Year holiday and the Beijing Winter Olympics have finished, the markets could realistically conclude that the combined effects of easier Chinese monetary policy and governmental fiscal support will boost China’s economy. If that scenario unfolds, given the global importance of China’s economy, it would drive up world demand for the type of raw materials Australia produces and, allied with the idea that the RBA is now edging towards tightening monetary policy, might underpin the Australian dollar. China and the US are now on divergent monetary policy trajectories but that just means new currency market opportunities for investors. Neal Kimberley is a commentator on macroeconomics and financial markets