RBA Pauses Rate Hikes, For Now

AUD

The Aussie dollar and ASX200 (+0.5%) have gained ground overnight after yesterday’s RBA Rate Statement, indicating further interest rate hikes may be needed, despite maintaining the current rate at 4.1% for now. The RBA decided to focus on decelerating inflation (prominent contributors being reduced transport and energy prices) rather than the strong labour market, while reiterating the strict data-dependent approach to future monetary policy decisions. Economists believe September could be a better occasion for the RBA to raise rates again, as it can examine the impact of wide-spread electricity tariff increases due in July (which will likely be visible in the September CPI data). Today’s focus will remain on China’s services PMI with a forecasted slowdown in growth to 56.5 for June, from 57.1 in May. Time is running out for the execution of fresh fiscal stimulus measures and Aussie dollar strength may be seen if it remains a liquid proxy for the Yen.

USD

AUDUSD opens up at 0.6692, having peaked at 0.6706, after a relatively quiet session as Americans celebrated Independence Day. The next major point of focus will be the Federal Reserve’s Monetary Policy Meeting Minutes, released tomorrow morning, which are expected to emphasise the fear that core inflation is proving to be stickier and further tightening may be required. This could be reinforced by Friday’s labour data, with the Unemployment Rate expected to fall by 0.1% to 3.6%. The demand for workers remains high and the Fed will be keeping a keen eye on wage-driven inflation risks.

EUR

AUDEUR has steadily increased to open at 0.6150 while Eurozone equities remained largely flat given the quiet calendar. ECB Official Nagel is set to speak today, although he already delivered some hawkish remarks earlier in the week, indicating the tightening cycle still has ground to gain given upside risks to the inflation outlook. Light on the data front for the rest of the week, although volatility could be seen at ECB President Lagarde’s speech in Saturday’s early hours.

GBP

AUDGBP and the FTSE traded largely flat in the overnight session to open this morning at 0.5262. In the UK, Rishi Sunak expressed his support for the Bank of England & noted the Bank has a strong record of bringing down inflation. With a quiet week on the data front, the question remains: Will the BoE raise by 25bps or 50bps at their next meeting on August 3?

NZD

AUDNZD opens slightly down to 1.0797 after the Kiwis showed a modest increase in business confidence and continued easing in capacity pressures, despite cost pressures remaining intense. We’ll see no meaningful data ahead of next Wednesday’s interest rate decision from the RBNZ, with the current rate at 5.5%.