AUD/USD starts this week above 0.6500, though its foothold is not assured. The week ahead includes event risks that will drive both legs of the pair, the August RBA policy meeting, July employment and US July CPI.
Aussie establishes a foothold above 0.6500
AUD/USD starts this week above 0.6500, though its foothold is not assured. The week ahead includes event risks that will drive both legs of the pair, the August RBA policy meeting, July employment and US July CPI.
The saga around Fed appointments hit a fever pitch last week. President Trump nominated Stephen Miran (current Chair of the Council of Economic Advisors) to fill Adriana Kugler's vacant seat temporarily. The Senate however needs to vote on this formally, which is unlikely to occur before the September FOMC as the Senate is currently on summer recess. But regardless, Miran will likely bring a dovish voice to the Fed. Miran (in)famously published "A Users Guide to Restructuring the Global Trading System" last year, a playbook for tariffs and argued strongly that tariffs need not be inflationary.
Discussions also continued around who would take over Powell as Fed chair once his term expires in May 2026. Trump's current list includes: Christopher Waller, Kevin Warsh, Kevin Hassett, James Bullard and Marc Sumerlin. The online betting portal Polymarket shows Waller to be the most likely nominee for the next Fed Chair. The composition of the Fed Board is clearly shifting in a dovish direction. The question is whether the Fed's institutional credibility is in doubt too. Market commentators argue that a Hassett nomination is more USD negative given his perceived loyalty to Trump, while Waller is perceived to be more apolitical.
Confusion also resurfaced around tariffs with an article from the FT reporting that the US Customs Border Protection has also called for tariffs to apply to one-kilo gold bars which make up the bulk of Switzerland’s gold exports and are the most heavily traded form on the Comex exchange. The CBP stated that 1kg and 100oz gold bars should be classified under a US customs code subject to tariffs in a letter dated July 31, seen by the FT. “That stands in sharp contrast with the industry’s previous expectations that these types of gold bars should be classified using a different code that is exempt from Trump’s countrywide tariffs” according to the FT. However a White House official commented that Trump will be releasing an executive order this week clarifying the "misinformation" from these headlines. Gold jumped above $3400/oz following the news but failed to hold above this level once again.
In other news the BOE delivered a 25bp cut last week, as expected, however 4 of the 9 MPC board members voted to keep rates on hold. This is clearly a heavily divided committee. Underscoring the deep fractures, Deputy Governor Lombardelli and Chief Economist Pill voted against a cut.
China export data beat expectations for July largely driven by non-US shipments which more than offset the declines in US-bound shipments.
Aussie was a little stronger against its G10 peers last week; AUD/NZD held to the higher side of the 1.0930-1.0980 area it has been stalking lately. Q2 NZ unemployment did not quite rise as much as expected, but even so, the vibe on the NZ economy has softened in recent weeks. Earlier greenshoots in the soft surveys have yet to translate into the hard data. AUD/EUR is broadly flat over the week, exploring the 0.5575-0.5610 area, while AUD/JPY gained 1.15% to 96.00+.
US equities climbed more than 2% over the week despite Trump's terminal tariffs taking effect on Thursday as many major trading partners had secured deals prior to the deadline. However negotiations remain in the air with China as we approach the August 12 deadline to extend their tariff pause. The low-key expectation is for an extension of the 90-day truce. Trump also threatened to double tariffs on India to 50% for buying Russian oil.
US 10 year yields recovered last week, reversing some of the declines that followed the weak US July payrolls report. Markets are currently pricing in -22bp for the September FOMC meeting.
Iron ore pushed higher over the week gaining more than 3% to $103.40, helped by strong China July trade data, showing firmer steel exports and firmer iron ore imports. Crude showed some signs of stabilising on Friday after extended declines and finished the week down more than 5% to $63.20/bbl.
The week ahead remains packed domestically with the RBA's August meeting and Aussie July employment data headlining calendars. After a surprise hold delivered in July, markets are fully pricing in a 25bp cut for August. According to
Westpac's Economics team, Aussie Q2 CPI confirmed that inflation is on track to return sustainably to the mid-point of the target range, giving the MPB the green light for an August rate cut.
The messaging around a rate cut likely emphasises "cautious and predictable". Markets will be sensitive to any SOMP forecast revisions to unemployment and trimmed mean CPI. Governor Bullock recently flagged probable downward revisions to productivity. We are wondering what the Bank has to say about the neutral policy rate, if anything.
Aussie July labour market data is also due this week with market forecasts for the unemployment rate ranging from 4.2-4.4%. According to
Westpac's Economics team, the unemployment rate has been ticking higher over the last few months, but June's move was a more notable one with a surge in youth unemployment, up from 9.5% to 10.4%, driving this move. Given the noise around June, a slight reversal to 4.2% is not unprecedented but unemployment likely grinds higher reaching an average 4.4% by year-end.
US Jul CPI is the marquee event for global markets this week. Headline CPI is expected to come in at 0.2% m/m, while the core rate is seen at 0.3% m/m. The full impact of tariffs is yet to unveil itself. After all, with tariff rates proving to be a moving feast US corporates have yet to settle their pricing strategies. The previous June CPI showed the first hints of tariff cost pass through in select goods and tariff generated inflation is expected to show up even more prominently in the July release. There's a lot riding on this release with rates markets confidently predicting 22bp in rate cut potential for the Fed's Sept meeting. Keep an eye on the US July PPI too. There's a lot of detail in factory sector inflation that is useful for the PCE report.
Presidents Trump and Putin are also due to meet in Alaska this Friday to negotiate a deal to end the war in Ukraine. Trump has previously expressed his frustration with Putin and claimed that further sanctions would be imposed on Russia if they continue to drag their heels.
Tuesday
Australia Jul NAB Business Confidence Survey
RBA Monetary Policy Meeting and Statement on Monetary Policy
US Jul CPI
Fedspeak; Barkin
Wednesday
Australia Q2 Wage Price Index, July Housing Finance
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