BOE Delivers Low Conviction Cut
AUD
The Aussie Dollar opens lower against most majors after heightened geopolitical concerns & souring risk sentiment weigh on the risk-sensitive currency. Asian equities, alongside most major global indices, retreated with the Nikkei -2.5%, Hang Seng -0.2%, and Shenzhen -0.6%. On the other hand, the ASX 200 set record highs above 8100, driven by real estate and info tech. To commodities, Natural Gas was the outperformer, up 3.7% while the others traded near-sideways. Later this morning we’ll see quarterly Producer Price Inflation, expected to gain 1.0%. The next major event will be the Reserve Bank of Australia’s Cash Rate decision, on Tuesday. After this week’s softer-than-expected inflation print, markets are expecting another hold at 4.35%.
USD
AUDUSD climbed to 0.6599 highs at about midnight, spurred on by higher-than-expected Unemployment Claims in the US, before falling nearly 1.5% on deteriorating risk sentiment to open today at 0.6496. Yesterday’s initial gains on Wall St. were short lived with the Nasdaq closing -2.3%, the S&P 500 -1.8%, and the Dow Jones -1.2%. The ISM Manufacturing PMI printed at 46.8 overnight, down from 48.8, reflecting further slowdown in the US manufacturing sector with employment figures looking especially poor. This week the Fed signaled the potential for a September interest rate cut, with last night’s manufacturing data giving markets even greater faith that the central bank will loosen monetary policy this year. Tonight will bring the Non-Farm Payrolls Report, providing insight into the US jobs market. The Unemployment Rate is expected to remain at 4.1%. Coming only two days after the Fed’s interest rate decision, the release is expected to have a more limited impact, especially given there will be another NFP Report (not to mention… More inflation data) ahead of the Fed’s next meeting in September.
EUR
AUDEUR climbed to 0.6072 highs in the late hours before falling off to this morning’s open at 0.6020, being a little lower than yesterday’s open. The DAX & CAC fell -2.3% & -2.1% respectively. We saw no market-moving data yesterday and nothing notable projected today. Current cases for Euro weakness include general malaise in the Eurozone manufacturing sector, with the softer China PMI earlier in the week failing to offer support. Combatting this could be market tendencies to use the Euro as the preferred vehicle to express a bearish US Dollar view.
GBP
AUDGBP opens a little higher at 0.5102, with the slide in the AUD exceeded by Pound weakness as the Bank of England delivered a finely balanced interest rate cut to 5.00% alongside careful guidance on future monetary policy decisions. Of the nine voting BOE Members, five opted for an interest rate cut, with four seeking another pause. The 25bps cut to 5.00% represents the first in this cycle, with the Official Bank Rate having been held at 5.25% since August 2023, although the BOE seems cautious not to let markets run away with the idea that this could be the start of a rapid cutting cycle (the Statement made no reference to the possibility of future cuts). Adding to the case for a pause at the next meeting is the UK’s stubborn services-sector inflation, currently at an annual rate of 5.7%, being well above target and historical averages, although economists expect this figure to continue falling later in the year. The FTSE gave up 1.0% yesterday. Tonight, Bank of England Member Pill is due to speak on last night's interest rate decision.
NZD
AUDNZD traded sideways throughout the course of yesterday, briefly climbing to test 1.0999 highs in the evening before falling off to open this morning at one-month lows of 1.0929. There was no Kiwi data yesterday, with nothing on the calendar today either. The next major releases will arrive on Wednesday, being the Employment Change q/q and the Unemployment Rate. Notably, markets are expecting a steep increase in the Unemployment Rate to 4.7% from last month’s 4.3% reading, adding further evidence to support the case for a near-term RBNZ interest rate cut.