Will Today's PMIs Support Disinflationary Trend?

AUD

The Aussie dollar has reversed recent gains made against most majors over the weekend, while the ASX closed Friday’s session down -0.2% with tech weighing on the index. Several pieces of data to digest this week. Firstly, Flash Manufacturing and Services PMIs for July arrived this morning, indicating the first fall in business activity recorded since March (Services 48.0, Manufacturing 49.6). Secondly, the much-anticipated CPI q/q release on Wednesday is expected to show a slowdown from +1.4 to +1.0%, while the y/y figure is expected at +5.5%. These key pieces of data will likely play a significant role in shaping future monetary policy expectations. Further, Retail Sales data on Friday will prove to be a focal point as the RBA assesses further tightening / easing decisions.

USD

AUDUSD has given back 1.7% since Thursday evening’s 0.6847 peak, having declined over the weekend to open at 0.6728. A muted Friday session also saw the NASDAQ close -0.3%, while both the S&P 500 and Down Jones were flat on the day. We’ve got a data-filled week ahead with tonight’s PMIs first in line. Both Manufacturing and Services are expected to show slight easing (46.1 and 54.0 respectively), adding to the recent disinflationary narrative ahead of Thursday’s US Federal Reserve interest rate decision. After pausing in June, the Fed is widely expected to hike interest rates by 25bps and taking the Federal Funds Rate to 5.5%, thereby adopting its most restrictive monetary stance for 22 years. The economic data has been mixed (strong labour data while price pressures cool), which should support Fed Chair Powell’s case that they could still deliver a soft landing (a slowdown that avoids a recession).

EUR

AUDEUR has fallen to 0.6049 after a quiet weekend on the data front, while Friday’s session saw the DAX fall -0.2% and the CAC gained +0.6%. This evening we’ll see Eurozone PMIs (often market-movers) ahead of the ECB interest rate decision on Thursday. A 25bps hike is almost entirely priced in, although what comes after is up for debate. ECB Governing Council Members are expected to soften their tone when it comes to forward guidance, with recent commentary from policymakers suggesting a pause in September may be on the cards.

GBP

AUDGBP has given back all gains made since last Wednesday’s weaker-than-expected UK inflation report, having steadily declined over the weekend to open at 0.5236. A relatively quiet week ahead, with the focal point being tonight’s Flash Manufacturing and Services PMI surveys. The figures are expected to ease slightly (to 46.1 and 53.1 respectively) as markets watch for any sign of further disinflationary pressures building and cooling in the economy.

NZD

AUDNZD saw a steady climb over the weekend to open at 3-week highs of 1.0907. The only Kiwi data this week arrives this morning, being Trade Balance and Credit Card Spending y/y figures. Next week will bring important labour data.