At 0.6513, AUD/USD starts the week very well-anchored within last week's ranges (0.6482-0.6569). That follows the RBA delivering a widely anticipated 25bp rate cut last week, a solid Aussie July employment report, mixed US July CPI & PPI tariff-inflation signals and ongoing heavy rate cut pressure from the US Administration on US Fed Chair Powell. Aussie likely remains unphased here amid a quiet week data wise leading up to Chair Powell's Jackson Hole symposium remarks.
Aussie keeps a tenuous foothold above 0.6500
At 0.6513, AUD/USD starts the week very well-anchored within last week's ranges (0.6482-0.6569). That follows the RBA delivering a widely anticipated 25bp rate cut last week, a solid Aussie July employment report, mixed US July CPI & PPI tariff-inflation signals and ongoing heavy rate cut pressure from the US Administration on US Fed Chair Powell. Aussie likely remains unphased here amid a quiet week data wise leading up to Chair Powell's Jackson Hole symposium remarks.
Domestically, the RBA delivered a 25bp cut last week, in line with market expectations, stating that inflation has continued to moderate and remains within the 2-3% target range. While the RBA commented that labour market conditions remain a little tight, they acknowledged that conditions have eased in recent months. The updated forecasts revealed an unchanged expectation for the trimmed mean at 2.6% for all the periods covered by the May SMP, however the rolling period revealed an expected 2.5% trimmed mean forecast for the end of 2027. Their forecasts for public demand and consumption were lowered relative to the May forecasts. However, both measures are still expected to grow over the next few years.
Aussie July employment data rebounded compared to the virtually zero growth in June, with the unemployment rate falling back to 4.2% from 4.3% previously. A third consecutive soft update would have started to raise more serious questions, but that was averted. Still, this latest data overall points to a labour market that is gradually re-entering a softening trend which will likely see employment growth slow and the unemployment rate drift higher to around 4.5% next year.
US July core CPI printed at 0.3%, the fastest pace m/m since January, however to the surprise of markets this was driven by autos and services inflation, rather than tariffs. Markets were reassured and confident pricing for a Sept Fed rate cut (>85% probability) was left intact. Treasury Secretary Bessent went even further and suggested that the Fed should cut rates by 50bp at their next meeting. Rates markets responded and briefly priced in 30bp in Sept Fed rate cut risk, i.e. a 20% chance of a larger 50bp rate cut. However, July PPI data the following day doused markets. Factory gate prices rose 0.9% m/m, the most in 3 years, an ouchy surprise that suggests producers may indeed be passing along the additional cost of tariffs.
So where do we sit overall? Some inklings of tariff generated inflation are coming through. At the same time US labour market risks have risen. Going into Fed Chair Powell's Jackson Hole speech Friday (midnight EAST) markets continue to confidently price in Fed rate cuts, with -55bp priced for the remainder of 2025.
Presidents Trump and Putin met in Alaska Friday to discuss the potential for peace in Ukraine following more than 3 years of conflict, and while Trump commented that many points were agreed upon between the US and Russia, details remain sparse. Trump also stated earlier today that "Zelensky could end the war with Russia if he wants to" - the two are scheduled to meet later today in Washington. The wider view among commentators is that while dialogue is welcomed, the EU, Ukraine, Russia and the US ultimately remain far apart on terms agreeable to both sides around core issues - territorial concessions and security guarantees for Ukraine.
China's July monthly activity data wasn't exactly reassuring last week either - annual retail sales and industrial production both slowed to their slowest pace this year.
AUD delivered a shaky performance against G10 peers last week; AUD/EUR fell -0.7% to around 0.5570, while AUD/JPY ticked down -0.4% to 96.13. AUD/NZD is the exception to an ongoing soggy picture for AUD on crosses, this pair inching up over the course of the week, though it hasn't cleared 1.1000.
US equities climbed higher over the week as Fed rate cut expectations remain robust in spite of contradicting CPI and PPI data, with the S&P500 finishing the week up almost 1%. US 10-year yields finished the week modestly higher, however fluctuated notably over the week within a 4.19-4.33% range.
Gold continued to waver within its multi-month range of $3250-$3450/oz, however Trump's clarification that tariffs won't apply to Swiss gold bars saw the metal finish the week lower. Iron ore ended the week closer to the lower end of recent ranges with the 62% index down 5c at $100.95.
Turning to the week ahead, Fed Chair Powell is scheduled to speak on Thursday at the Annual Jackson Hole Symposium. While signs of tariff pass through are yet to materialise significantly across CPI and PPI data, a worryingly weak US July payrolls print has opened up discussion around a potential September cut, however it is unclear whether or not Powell will provide any signals around September. His remarks will be focused on the Fed's current policy framework review. There's another US payrolls and CPI before the mid-Sept FOMC, so the risk is that Chair Powell may not be be able to fully endorse pricing (-22bp). At a stretch, Powell might offer a modest concession, noting that increased labour market risks mean that the Fed can move cautiously to reduce the degree of restrictiveness. But that is priced in.
The RBNZ meets Wednesday and a rate cut is widely expected, taking their policy rate to 3.00%. Preliminary August PMIs for manufacturing and services roll out globally Thursday. Business surveys have been stabilising in recent months as provisional tariff "deals" have been settled and trade uncertainty has receded.
Tuesday
Australia Aug Westpac Consumer Confidence
Australian Treasurer Jim Chalmers to host Economic Reform Roundtable in Canberra.
Wednesday
RBNZ Monetary Policy Meeting
UK Jul CPI
Eurozone Jul CPI (Final)
ECB President Lagarde speaks at World Economic Forum in Geneva.
US FOMC July Meeting Minutes
Fedspeak; Waller, Bostic.
Thursday
Australia Aug Melbourne-Institute Consumer Inflation Expectations
Australia, Japan, Eurozone UK, US Aug Flash Manufacturing and Services PMIs
US Conf. Board Leading Index
Friday
Japan Jul Natl. CPI
Fed Chair Powell speak at annual Jackson Hole Symposium (21-23 Aug).
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