AUD/USD is trading with a heavy tone to start the week, falling 0.5% down to 0.6530. But even so, it's squarely in the middle of a US2 cent wide rising trend channel that has been in place since late April. AUD likely bides its time early in the week, regrouping ahead of decisive data and events - Fed and BoJ meetings, Aussie Q2 CPI, US advance Q2 GDP and June payrolls.
Aussie recharges ahead of a big week
AUD/USD is trading with a heavy tone to start the week, falling 0.5% down to 0.6530. But even so, it's squarely in the middle of a US2 cent wide rising trend channel that has been in place since late April. AUD likely bides its time early in the week, regrouping ahead of decisive data and events - Fed and BoJ meetings, Aussie Q2 CPI, US advance Q2 GDP and June payrolls.
After months of back and forth, the US has finally made deals with Japan and the EU. A 15% reciprocal tariff rate has been agreed with both. Japan has pledged to invest USD550bn into the US, while the EU is promising to invest USD600bn into the US and purchase USD750bn worth of energy. US Treasury Secretary Scott Bessent is scheduled to meet with Chinese officials this week for the third round of trade negotiations. An extension of the 90-day tariff pause is widely expected.
This path of tariff de-escalation and easing risk aversion has seen a broadly weaker DXY, down almost 1% week-on-week in line with a recovery in US equities. The S&P500 climbed to new highs for the second week in a row up almost 1.5% over the last 5 days. US 10-year yields fluctuated in a relatively modest range between 4.32-4.44%. The Trump-Powell saga dragged on with markets still unclear on whether the Fed Chair will be dismissed early with Powell's term set to expire next May.
Domestically, the RBA July meeting minutes revealed that while the RBA acknowledges that inflation is within the target band and policy remains "modestly restrictive", the board still views the labour market as tight. As discussed in
Luci's note, the majority of the board viewed holding rates steady as necessary to remain in line with a ‘cautious and predictable’ strategy. Conversely, the minority of members in favour of a cut highlighted downside risks to growth and inflation, as well as the lags in the effects of monetary policy. A 50bp cut was not considered.
Governor Bullock's comments at the annual Anika Foundation event reinforced this narrative, stating that the softening in labour market conditions has so far been most prevalent in fewer job vacancies, fewer hours worked and declining rates of voluntary job switching, all of which are "less disruptive" than outright job losses.
AUD firmed modestly vs most of its G10 peers last week, against the background of ongoing upside in risk assets, positive news on trade deals and surging bulk commodity prices; AUD/EUR briefly explored 0.5600 but settled near 0.5585, while AUD/JPY jumped 1% over the week up above 97.00. AUD/NZD has lost the rebound momentum that developed after the RBA's hawkish July pause and the RBNZ's dovish pause, but it’s still hanging in there, just above 1.0900.
Iron ore has had an incredibly strong run, gaining almost 9.5% over the month, following China's announcement that a new hydro dam is being developed in Tibet, and China's push to cut excess capacity across a swathe of industries, notably including steel. Gold climbed back to range highs above $3400/oz following Trump's threats against Chair Powell, but failed to hold above this level.
Domestically, Aussie Q2 CPI will be a key focus (market f/c: 0.8%, Westpac f/c: 0.9%) with Westpac's
Justin Smirk outlining the key drivers will be rising electricity costs as the energy rebates wind down, auto-fuel costs and holiday costs. A 0.7% q/q lift in the trimmed mean CPI should pave the way for an August RBA rate cut.
The July FOMC meeting is mostly a placeholder. Chair Powell is of course facing heavy pressure to cut rates but he will hold the line. Recent US data has been fairly benign and paint a picture of an economy that is cooling. But there is still a lot of uncertainty about tariff cost inflation, all of which affords patience. Jobless claims have fallen for 6 consecutive weeks for example, while June CPI displayed the first signs of tariff pass through. US June Payrolls and PCE will also provide further insight into the likelihood of a September rate cut, with markets currently pricing in 16bp of cuts.
The BOJ and BOC will also hold their July policy meetings this week.
Monday
US Tsy. Secretary Bessent, meets Chinese officials in Stockholm for third round of trade talks.
Tuesday
US Jul Conference Board Consumer confidence, Jun JOLTS Job Openings
Wednesday
Australia Q2 CPI
German cabinet to approve 2026 budget
BOC Monetary Policy Meeting
US FOMC Monetary Policy Meeting, Q2 GDP (Adv.), Jul ADP Employment
Thursday
Australia Jun Retail Sales, Building Approvals, Private Sector Credit
China Jul Manufacturing & Non-manufacturing PMI
BOJ Monetary Policy Meeting
US Jun PCE Price index, Personal Income & Spending
Friday
Australia Jul Q2 PPI
Australia, Japan, China, UK, Canada & US Jul S&P500 Global Manufacturing PMI (Final)
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