RBA Likely to Leave Rates Unchanged Today

AUD

The Aussie dollar has made progress against majors overnight while the ASX gained +0.1% as markets await today’s RBA Cash Rate decision. Economists are expecting the central bank to sit on its hands for a few months given the recent and unexpected slowdown in domestic price pressures, including a prolonged pullback in real retail sales figures. Further, financial markets, which have been more accurate than economists on rate movements since the RBA began normalizing monetary policy, put the chance of a hike at less than 10%. Still, the decision will likely be a line-ball-call as unemployment remains near 50-year lows at 3.5% (still about one percentage point away from the level that the RBA has said will enable inflation to return to 2 to 3%!)

USD

AUDUSD has gained over 1% overnight to open at 0.6719, with another positive night on Wall St seeing the Dow Jones and the S&P 500 close +.3%, while the NASDAQ finished +0.2%. Currently light on the data front after last week’s unanimous Fed decision to hike by 25bps to 5.5% (22-year highs). Notably, tomorrow’s labour report will set the scene for 2-months of data ahead of the Fed’s next decision. US employment has remained resilient this year, even as the Fed has raised interest rates, although after months of expectations-beating reports, hiring in June cooled more than expected. This cooling is expected to continue with tomorrow’s data, which would help the case for another Fed pause. Particularly, JOLTS Job Openings is expected at 9.61m (down from 9.82m) and ADP Non-Farm Employment Change is expected at 191k (last month was 497k).

EUR

AUDEUR has gained ground overnight to open at 0.6106 despite Eurozone Core CPI Flash Estimate y/y surprising to the upside. The uptick in expected services inflation (+5.6% compared with +5.4% in June) reflects further stubbornness, counterbalancing the pullback in headline CPI (expected at +5.3%, down from +5.5% in June). To equities, the DAX lost -0.1% while the CAC gained +0.3%. Tonight will bring Manufacturing PMI data from France, Germany, Spain and Italy, as well as the Eurozone’s Unemployment Rate (expected to remain at 6.5%). None of which typically move markets.

GBP

AUDGBP has climbed from 17-month lows of 0.5158 yesterday morning to open at 0.5228. Light on the data front in the coming days ahead of the Bank of England’s interest rate decision on Thursday. Welcome news on UK inflation (headline CPI dropped back to +7.9% y/y in June) has taken a fair amount of pressure of the Bank of England to repeat the 50bps rate hike it implemented in June, while the central bank is still expected to raise by 25bps, taking the rate to 5.25%.

NZD

AUDNZD opens relatively flat at 1.0808, having climbed back from 10-day lows at 1.0783 yesterday afternoon after ANZ Business Confidence data lifted 5 points in July to -13, being the highest reading since September 2021. The focus this week remains on tomorrow’s labour report, where the Unemployment Rate is tipped to edge up +0.1% to 3.5% as the impacts of the RBNZ’s interest rate hikes ripple through the economy.