AUD/USD stumbled last week following a softer domestic July CPI print, along with a relatively hawkish reading of the FOMC, before a brutal US July jobs report provided some much needed stability. However AUD remains nearer the bottom of its US2c wide channel in place since the start of the year. The week ahead is light datawise. We are watching for reciprocal tariffs to kick in 7 August, foreign interest in key US bond auctions and Fedspeak this week.
Brutal US jobs report stabilises Aussie
AUD/USD stumbled last week following a softer domestic July CPI print, along with a relatively hawkish reading of the FOMC, before a brutal US July jobs report provided some much needed stability. However AUD remains nearer the bottom of its US2c wide channel in place since the start of the year. The week ahead is light datawise. We are watching for reciprocal tariffs to kick in 7 August, foreign interest in key US bond auctions and Fedspeak this week.
Friday's dreadful July US payrolls report inflames both cyclical and structural USD risks. Payrolls grew a sub-par 73k in July, alongside -258k in downward revisions to the last 2mths. A 3mth average payrolls pace of 25k portrays a comprehensively different US labour market picture than initially believed (150k) and roundly brought an end to the USD’s nascent rebound.
The unemployment rate also rose, +0.1ppt to 4.248%, rounding down to 4.2%. Had it printed 4.3%, an even harsher market response could have been expected. The S&P500 gave up a month worth of gains on Friday, US bond yields tumbled more than 20bp and Sept FOMC pricing swung to 80% chances of a cut.
The highly uncertain macro environment and the highest tariff rates since the 1930s are clearly leaving their trace after all. For a good part of July, the USD appeared to be benefitting from bilateral trade deals that were being secured on very beneficial terms to the US. That is less obviously true and sustainable given clear evidence that the US is bearing the brunt of tariffs. The breadth of US tariffs limits substitutability options for US consumers and business so the notion that the US was a relative winner was always dubious.
Adding to the concerns, president Trump also removed the Commissioner from the BLS Chair, reviving doubts about the soundness and integrity of US institutions. The early departure of Fed Gov. Kugler (also announced Friday) opens the door to a Fed Chair nominee via this vacancy with someone that is more obviously malleable and loyal to the Administration. The arc of this story clearly has a lot farther to run, and there are clear risks to a revival of the "US risk premium".
The FOMC left rates on hold last week, however Fed members Waller and Bowman dissented claiming that an unstable US labour market and contained upside risks to inflation supported the case for a July cut. This marked the first "double dissent" involving two Governors in almost 3 decades. Coincidentally, Waller and Bowman have recently both been recognised as potential candidates to replace Powell as FOMC Chair come next May. Markets are now pricing in 23bp cuts for the Fed's September meeting, however August labour market data will be closely monitored leading up to the meeting.
Australia's Q2 trimmed mean CPI was a relief, coming in softer than expected at 0.6% (vs exp 0.7%) with markets seeing this as a greenlight for an RBA 25bp cut in August. According to
Justin, energy rebates continued to significantly mitigate inflation despite electricity bills increasing consecutively over the March and June quarters. Pharmaceuticals fell slightly more than anticipated which was partially offset by stronger food prices and a smaller than expected fall in car and fuel prices.
AUD was broadly weaker on the crosses over last week following unwinding of USD shorts around lopsided trade deals with Japan and the EU; AUD/EUR was down -0.54% to 0.5598, AUD/JPY fell -1.8% near to 95.15 and AUD/NZD climbed modestly up 0.4% to 1.096 bolstered by a 10% reciprocal rate set for Australia vs 15% for NZ.
Aussie retail sales printed hotter at 1.2% for June (vs exp 0.4%), largely driven by non-food retail sales. According to
Matt, these gains may have been influenced by "End of Financial Year" sales with consumers tapping sales periods more aggressively in recent years to cope with rising cost of living.
The BoJ and BoC held their July meetings with both central banks leaving rates on hold. The BoJ also updated inflation expectations with a brighter economic backdrop emerging on account of the recent US-Japan trade deal and reduced uncertainty.
US-China talks continued in Stockholm, ultimately providing no new information however the tariff pause on China was extended for another 90 days. Deals have now been struck with major trading partners including Japan, Europe, UK, South Korea, Indonesia. Meanwhile negotiations continue to drag on with Canada and Mexico leading into the August 7 deadline where tariffs are set to resume. For those trade partners where no agreement was reached, the Administration has simply imposed a bilateral tariff that loosely aligns with the size of their surplus with the US. The revised tariffs are highest for Brazil (50%) and Switzerland (39%), and lowest for Australia and the United Kingdom (10%).
US GDP surprised to the upside, printing at 3% for Q2 however this was most likely driven by the decline in imports as a result of frontloading earlier in the year to curb tariffs. Underlying momentum softened with final sales to private domestic purchases declining to 1.1% from 1.5% in the previous quarter signalling that activity softened despite tariff costs not being fully passed through.
Gold climbed almost 2%% following Friday's payrolls data as renewed Fed rate cut expectations saw a brief tick above $3380/oz, however gold remains in a consolidative range of $3200-3400/oz. Iron ore remains above $100 however has fallen substantially over the last week as talks of steel production cuts weigh on sentiment.
US equities plunged on Friday following US payrolls data with some indices braving the worst declines since the Liberation Day sell off in April. The S&P500 was down 2.36% week-on-week. US-10 year yields also followed suit falling almost 20bp to 4.2% from 4.4% as expectations firmed up around a September Fed rate cut.
The week ahead remains fairly quiet data-wise. We will be watching foreign interest in key US bond auctions and Fedspeak will speak more interest in light of the soft US jobs data. The overarching takeaway from Fedspeak is likely a pivot from "no rush to cut rates" to sounding more obviously dovish - in the same vein as San Fran Fed's Daly Monday.
The BOE will also hold their August policy meeting at which markets expect a 25bp cut to be delivered on account of softening wages and a cooling labour market despite sticky inflation.
Tuesday
Eurozone PPI, services PMI
US Jun Trade Balance, Jul ISM services, S&P Global PMI (Final)
We respect your privacy: You can view our privacy statement at Westpac.com.au. Each time someone visits our site, data is captured so that we can accurately evaluate the quality of our content and make improvements for you. We may at times use technology to capture data about you to help us to better understand you and your needs, including potentially for the purposes of assessing your individual reading habits and interests to allow us to provide suggestions regarding other reading material which may be suitable for you.
This information, unless specifically indicated otherwise, is under copyright of the Westpac Group. None of the material, nor its contents, nor any copy of it, may be altered in any way, transmitted to, copied of distributed to any other party without the prior written permission of the Westpac Group.
Disclaimer
This information has been prepared by the Westpac and is intended for information purposes only. It is not intended to reflect any recommendation or financial advice and investment decisions should not be based on it. This information does not constitute an offer, a solicitation of an offer, or an inducement to subscribe for, purchase or sell any financial instrument or to enter into a legally binding contract. To the extent that this information contains any general advice, it has been prepared without taking into account your objectives, financial situation or needs and before acting on it you should consider the appropriateness of the advice. Certain types of transactions, including those involving futures, options and high yield securities give rise to substantial risk and are not suitable for all investors. We recommend that you seek your own independent legal or financial advice before proceeding with any investment decision. This information may contain material provided by third parties. While such material is published with the necessary permission none of Westpac or its related entities accepts any responsibility for the accuracy or completeness of any such material. Although we have made every effort to ensure this information is free from error, none of Westpac or its related entities warrants the accuracy, adequacy or completeness of this information, or otherwise endorses it in any way. Except where contrary to law, Westpac Group intend by this notice to exclude liability for this information. This information is subject to change without notice and none of Westpac or its related entities is under any obligation to update this information or correct any inaccuracy which may become apparent at a later date. This information may contain or incorporate by reference forward-looking statements. The words “believe”, “anticipate”, “expect”, “intend”, “plan”, “predict”, “continue”, “assume”, “positioned”, “may”, “will”, “should”, “shall”, “risk” and other similar expressions that are predictions of or indicate future events and future trends identify forward-looking statements. These forward-looking statements include all matters that are not historical facts. Past performance is not a reliable indicator of future performance, nor are forecasts of future performance. Whilst every effort has been taken to ensure that the assumptions on which any forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties. The ultimate outcomes may differ substantially from any forecasts.
Conflicts of Interest: In the normal course of offering banking products and services to its clients, the Westpac Group may act in several capacities (including issuer, market maker, underwriter, distributor, swap counterparty and calculation agent) simultaneously with respect to a financial instrument, giving rise to potential conflicts of interest which may impact the performance of a financial instrument. The Westpac Group may at any time transact or hold a position (including hedging and trading positions) for its own account or the account of a client in any financial instrument which may impact the performance of that financial instrument.
Author(s) disclaimer and declaration: The author(s) confirms that (a) no part of his/her compensation was, is, or will be, directly or indirectly, related to any views or (if applicable) recommendations expressed in this material; (b) this material accurately reflects his/her personal views about the financial products, companies or issuers (if applicable) and is based on sources reasonably believed to be reliable and accurate; (c) to the best of the author’s knowledge, they are not in receipt of inside information and this material does not contain inside information; and (d) no other part of the Westpac Group has made any attempt to influence this material.
Further important information regarding sustainability-related content: This material may contain statements relating to environmental, social and governance (ESG) topics. These are subject to known and unknown risks, and there are significant uncertainties, limitations, risks and assumptions in the metrics, modelling, data, scenarios, reporting and analysis on which the statements rely. In particular, these areas are rapidly evolving and maturing, and there are variations in approaches and common standards and practice, as well as uncertainty around future related policy and legislation. Some material may include information derived from publicly available sources that have not been independently verified. No representation or warranty is made as to the accuracy, completeness or reliability of the information. There is a risk that the analysis, estimates, judgements, assumptions, views, models, scenarios or projections used may turn out to be incorrect. These risks may cause actual outcomes to differ materially from those expressed or implied. The ESG-related statements in this material do not constitute advice, nor are they guarantees or predictions of future performance, and Westpac gives no representation, warranty or assurance (including as to the quality, accuracy or completeness of the statements). You should seek your own independent advice.
Additional country disclosures:
Australia: Westpac holds an Australian Financial Services Licence (No. 233714). You can access Westpac’s Financial Services Guide here or request a copy from your Westpac point of contact. To the extent that this information contains any general advice, it has been prepared without taking into account your objectives, financial situation or needs and before acting on it you should consider the appropriateness of the advice.
New Zealand: In New Zealand, Westpac Institutional Bank refers to the brand under which products and services are provided by either Westpac (NZ division) or Westpac New Zealand Limited (company number 1763882), the New Zealand incorporated subsidiary of Westpac ("WNZL"). Any product or service made available by WNZL does not represent an offer from Westpac or any of its subsidiaries (other than WNZL). Neither Westpac nor its other subsidiaries guarantee or otherwise support the performance of WNZL in respect of any such product. WNZL is not an authorised deposit-taking institution for the purposes of Australian prudential standards. The current disclosure statements for the New Zealand branch of Westpac and WNZL can be obtained at the internet address www.westpac.co.nz .
Singapore: This material has been prepared and issued for distribution in Singapore to institutional investors, accredited investors and expert investors (as defined in the applicable Singapore laws and regulations) only. Recipients of this material in Singapore should contact Westpac Singapore Branch in respect of any matters arising from, or in connection with, this material. Westpac Singapore Branch holds a wholesale banking licence and is subject to supervision by the Monetary Authority of Singapore.
U.S.: Westpac operates in the United States of America as a federally licensed branch, regulated by the Office of the Comptroller of the Currency. Westpac is also registered with the US Commodity Futures Trading Commission (“CFTC”) as a Swap Dealer, but is neither registered as, or affiliated with, a Futures Commission Merchant registered with the US CFTC. The services and products referenced above are not insured by the Federal Deposit Insurance Corporation (“FDIC”). Westpac Capital Markets, LLC (‘WCM’), a wholly-owned subsidiary of Westpac, is a broker-dealer registered under the U.S. Securities Exchange Act of 1934 (‘the Exchange Act’) and member of the Financial Industry Regulatory Authority (‘FINRA’). In accordance with APRA's Prudential Standard 222 'Association with Related Entities', Westpac does not stand behind WCM other than as provided for in certain legal agreements between Westpac and WCM andobligations of WCM do not represent liabilities of Westpac. This communication is provided for distribution to U.S. institutional investors in reliance on the exemption from registration provided by Rule 15a-6 under the Exchange Act and is not subject to all of the independence and disclosure standards applicable to debt research reports prepared for retail investors in the United States. WCM is the U.S. distributor of this communication and accepts responsibility for the contents of this communication. Transactions by U.S. customers of any securities referenced herein should be effected through WCM. All disclaimers set out with respect to Westpac apply equally to WCM. If you would like to speak to someone regarding any security mentioned herein, please contact WCM on +1 212 389 1269. Investing in any non-U.S. securities or related financial instruments mentioned in this communication may present certain risks. The securities of non-U.S. issuers may not be registered with, or be subject to the regulations of, the SEC in the United States. Information on such non-U.S. securities or related financial instruments may be limited. Non-U.S. companies may not be subject to audit and reporting standards and regulatory requirements comparable to those in effect in the United States. The value of any investment or income from any securities or related derivative instruments denominated in a currency other than U.S. dollars is subject to exchange rate fluctuations that may have a positive or adverse effect on the value of or income from such securities or related derivative instruments.
The author of this communication is employed by Westpac and is not registered or qualified as a research analyst, representative, or associated person of WCM or any other U.S. broker-dealer under the rules of FINRA, any other U.S. self-regulatory organisation, or the laws, rules or regulations of any State. Unless otherwise specifically stated, the views expressed herein are solely those of the author and may differ from the information, views or analysis expressed by Westpac and/or its affiliates.
UK and EU: The London branch of Westpac is authorised in the United Kingdom by the Prudential Regulation Authority (PRA) and is subject to regulation by the Financial Conduct Authority (FCA) and limited regulation by the PRA (Financial Services Register number: 124586). The London branch of Westpac is registered at Companies House as a branch established in the United Kingdom (Branch No. BR000106). Details about the extent of the regulation of Westpac’s London branch by the PRA are available from us on request.
Westpac Europe GmbH (“WEG”) is authorised in Germany by the Federal Financial Supervision Authority (‘BaFin’) and subject to its regulation. WEG’s supervisory authorities are BaFin and the German Federal Bank (‘Deutsche Bundesbank’). WEG is registered with the commercial register (‘Handelsregister’) of the local court of Frankfurt am Main under registration number HRB 118483. In accordance with APRA’s Prudential Standard 222 ‘Association with Related Entities’, Westpac does not stand behind WEG other than as provided for in certain legal agreements (a risk transfer, sub-participation and collateral agreement) between Westpac and WEG and obligations of WEG do not represent liabilities of Westpac.
This communication is not intended for distribution to, or use by any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law or regulation. This communication is not being made to or distributed to, and must not be passed on to, the general public in the United Kingdom. Rather, this communication is being made only to and is directed at (a) those persons falling within the definition of Investment Professionals (set out in Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “Order”)); (b) those persons falling within the definition of high net worth companies, unincorporated associations etc. (set out in Article 49(2)of the Order; (c) other persons to whom it may lawfully be communicated in accordance with the Order or (d) any persons to whom it may otherwise lawfully be made (all such persons together being referred to as “relevant persons”). Any person who is not a relevant person should not act or rely on this communication or any of its contents. In the same way, the information contained in this communication is intended for “eligible counterparties” and “professional clients” as defined by the rules of the Financial Conduct Authority and is not intended for “retail clients”. Westpac expressly prohibits you from passing on the information in this communication to any third party.
This communication contains general commentary, research, and market colour. The communication does not constitute investment advice. The material may contain an ‘investment recommendation’ and/or ‘information recommending or suggesting an investment’, both as defined in Regulation (EU) No 596/2014 (including as applicable in the United Kingdom) (“MAR”). In accordance with the relevant provisions of MAR, reasonable care has been taken to ensure that the material has been objectively presented and that interests or conflicts of interest of the sender concerning the financial instruments to which that information relates have been disclosed.
Investment recommendations must be read alongside the specific disclosure which accompanies them and the general disclosure which can be found here. Such disclosure fulfils certain additional information requirements of MAR and associated delegated legislation and by accepting this communication you acknowledge that you are aware of the existence of such additional disclosure and its contents.
To the extent this communication comprises an investment recommendation it is classified as non-independent research. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and therefore constitutes a marketing communication. Further, this communication is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Sign in
Westpac Corporate and Institutional clients sign in for access to all
insights.
Sign in
Westpac Corporate and Institutional clients sign in for access to all
insights.
Set a new password
Your password must have at least 8 characters and include at least one
uppercase letter, one special character and one number.
Your new password has been set.
Reset your password
Please enter your login email address and we’ll email you a reset password
link.
We’ve sent a reset link to test@test.com
Reset your password
Please enter your login email address and we’ll email you a reset password
link.
We’ve sent a reset link to test@test.com
Please check your email
We have sent a reset link to test@test.com
Reset your password
The reset password link is expired. Please try again.
