RBA gives Aussie a nudge but 0.66 remains a ceiling
AUD/USD made a speedy return up to range highs last week, helped by the RBA's unexpected decision to keep rates on hold. Calm global market conditions, even though President Trump is back on the offensive with tariff threats, are playing a supportive background role too. Against these conditions AUD/USD eked out marginal 8 month highs late last week, 0.6595. AUD starts the week off its best levels, around 0.6560, ahead of another important week that includes China Q2 GDP, US June CPI and local June jobs.
RBA gives Aussie a nudge but 0.66 remains a ceiling
AUD/USD made a speedy return up to range highs last week, helped by the RBA's unexpected decision to keep rates on hold. Calm global market conditions, even though President Trump is back on the offensive with tariff threats, are playing a supportive background role too. Against these conditions AUD/USD eked out marginal 8 month highs late last week, 0.6595.
While the reciprocal deadline has been pushed back to 1 August, allowing countries more time to negotiate deals, new Trump tariff rate announcements are coming through each passing day with the most recent being: 30% on the EU and Mexico, 35% on Canada (ex-USMCA compliant products), 50% on copper and Brazil and 25% on Japan and South Korea.
But the S&P500 and the world MSCI hit record highs last week. Markets are clearly taking the latest tariff threats in stride, seeing them a negotiation tactic. The risk is that negotiations don't unfold smoothly.
But the big news that drove AUD last week was the RBA, keeping rates on hold despite markets widely calling for a 25bp cut. According to Westpac's Luci Ellis, the post-meeting statement noted the gradual recovery in private sector demand and a tight labour market as justification for the decision. The line that "geopolitical uncertainty remains pronounced" was also removed which suggests that the RBA believes global risks have moderated over the last few months.
The RBA's strong message is for a cautious and deliberate rate cut tempo, around quarterly CPI releases. AUD has been struggling on the crosses for some time, but saw a notable uplift after the RBA laid out a more cautious path; AUD/NZD was up 1.4% for the week, scaling 1.09 for the first time since mid-May, AUD/JPY is up 2% over the last week, while AUD/EUR climbed 1%, retaking 0.5600+.
The S&P500 printed a new all time high of 6290.22, though finished slightly softer into the back end of the week. US bond yields oscillated through the week, ultimately finishing higher in line with Trump's tariff announcements. US 10yr yields start the week at 4.42%, up about 20bp so far in July.
The Trump Administration's relentless pressure on Fed Chair Powell's handling of US monetary policy too continues to intensify too. The latest line of attack has been around cost overruns for renovating the Federal Reserve's Washington headquarters, now projected to cost USD2.5bn. Kevin Hassett, Director of the National Economic Council, and one of Trump's shortlisted Fed Chair nominees, suggested this could be a "just cause" pretext for legally removing Powell from his role.
Any concrete moves to replace Fed Chair Powell with a tainted nominee - someone that would inevitably be seen as a Trump loyalist - would be hugely problematic for market stability.
Iron ore prices have been languishing between $92-96/t in the last several weeks, but climbed sharply last week, testing $100/t, coinciding with an 10%+ surge in China's property stock index. The macro vibe around China is firming again.
Expectations are building for a more coordinated and active policy response to tackle deflation and protracted weakness in property markets. Local reports suggest that the development of shanty-town areas might resume. This follows recent reports that the PBOC has been seeking learnings from European institutions on the fallout from ultra-low rates. President Xi also chaired a Central Financial and Economic Affairs Commission meeting in early July too, raising hopes that another supply side reform drive may be in the works, addressing excess over-capacity, excess competition, and lifting support for consumption. If a genuine policy shift is developing upcoming Politburo, State Council and NDRC meetings will offer clues.
US CPI & China June activity data, including Q2 GDP (Tue) and local jobs (Thu) headline this week's calendars. The last 3 US CPI prints have been softer than expected, betraying little in the way of tariff impacts. Expectations are firming for China’s Q2 to print on the higher side of the government’s full year 5% target. Today’s June China trade and financing figures were both a little stronger than expected and suggest that is possible. On the local front, markets are looking for a respectable jobs lift in June (consensus +20k).
Monday
- EU Trade ministers meet in Brussels to discuss US tariffs
Tuesday
- Australia Westpac Consumer Confidence
- PM Albanese to attend Aus/China CEO roundtable in Beijing
- China Q2 GDP, Jun Retail Sales, Industrial Production
- BOE Governor Bailey to give annual speech at Mansion House.
- US Jun CPI, Jul Fed Empire Manufacturing survey
- Fedspeak; Bowman, Barr, Collins, Logan, Barkin
Wednesday
- UK Jun CPI
- US Jun PPI, Industrial Production
Thursday
- Japan Jun Trade Balance
- Australia Jun Employment data
- US Jun Retail Sales, Jul Philly Fed Index
Friday
- Japan Jun CPI
- US Jul University of Mich. Sentiment (Prelim.)
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