AUD/USD starts the week up near 0.6550 amid the brewing legal battle following Trump's dismissal of FOMC Governor Lisa Cook. Aussie extended gains into the end of last week following a hotter monthly CPI print for July and RBA minutes which reinforced a more measured policy easing stance. Aussie Q2 GDP will be key domestically this week, meanwhile US August nonfarm payrolls will be closely watched as the final employment report before September's FOMC.
Aussie climbs near 0.6550 on softening US sentiment
AUD/USD starts the week up near 0.6550 amid the brewing legal battle following Trump's dismissal of FOMC Governor Lisa Cook. Aussie extended gains into the end of last week following a hotter monthly CPI print for July and RBA minutes which reinforced a more measured policy easing stance. Aussie Q2 GDP will be key domestically this week, meanwhile US August nonfarm payrolls will be closely watched as the final employment report before September's FOMC.
President Trump ramped up his attacks against FOMC Governor Lisa Cook last week calling for her dismissal following mortgage fraud allegations. The case was brought to court last Friday, with the Fed commenting that it would respect the decision of the court and a judge has since called for court documents to be submitted by both parties this Tuesday. However, Trump stated earlier today that the judge in question should "recuse" themselves.
This story however likely has further to run with Trump commenting last week that Stephen Miran's (Trump's choice of temporary replacement for Adriana Kugler) time on the board may be extended. He also suggested that the Fed board would be scrutinised more closely by the Trump administration, presenting a much more sinister threat to US Institutional governance and credibility as Fed independence has been key in many markets in keeping inflation expectations anchored.
US July core PCE printed in line with consensus expectations at 0.3%, however the YoY measure ticked up to 2.9% - still notably far from the Fed's 2% target. However, this was largely driven by services inflation, namely financial services costs. With Powell as well as several FOMC members commenting that they anticipate the inflationary impact of tariffs to flow through over the next few months, and flagging that labour market risks have intensified. Markets are still pricing in -22bp of cuts for September's FOMC with US labour market data this week likely to dictate pricing further.
Domestically, the RBA August meeting minutes revealed that the board judged some further easing will be required over the coming year and that the board still sees policy as somewhat restrictive, however the pace of rate cuts would be dictated by data and the balance of global risks. The monthly CPI indicator also printed slightly hotter for July at 2.8% y/y (vs exp 2.3%), however was largely driven by the timing of electricity rebates rolling off.
AUD was slightly stronger on the crosses, aided by a relatively more dovish RBNZ, with the former adopting a more emphatic approach to rate cuts vs the RBA's more measured strategy, as well as growing political risks within France; AUD/NZD saw a decent rally to a multi-month high of 1.1125 but has since pulled back relatively flat week on week, AUD/EUR ticked up 0.16% near 0.5588, AUD/JPY was up 0.43% pushing back above 96.0.
China's August manufacturing PMI was out over the weekend, showing that manufacturing activity remained stuck in contraction in August as the government crackdown on overcapacity and tariff woes have hindered production this year. However more stimulus is yet to come out of Beijing over the coming months with the State council, NDRC and 5-year plan yet to be delivered. China's Industrial profits for July also showed that profits fell by the least since May this year, signalling a slight recovery amongst producers.
WTI crude oil futures settled at $64 last week, managing to sustain above the 1-year moving average of $63.35 for a second straight week, boosted by Trump's doubling of tariffs on India (as a punishment for purchasing Russian oil), and the continued attacks of Ukraine on Russian refineries. Gold climbed more than 3% over last week following Cook's potential dismissal from the Fed and the potential for further EU sanctions on Ukraine, and has pushed higher over today creeping towards the $3500/oz level.
US equities were modestly weaker into the week's end with the S&P500 down 0.1% over the last 5 days as markets wound down ahead of the US Labour Day holiday. US bond yields were also slightly lower falling from 4.27% to 4.23% over the week.
Turning to the week ahead, US August nonfarm payrolls will headline calendars as the final employment report before the September FOMC. With Fed Chair Powell's Jackson Hole speech flagging the downside risks to the labour market in addition to FOMC Governors, Waller and Daly indicating that it will soon be time to recalibrate policy, a weaker than expected payrolls report could see rate cut expectations firm up around September.
Aussie Q2 GDP will also be key domestically with markets broadly expecting that the economy expanded by 0.5% over Q2 driven by a recovery in household demand and construction.
Monday
UK Aug S&P Global Manufacturing PMI (Final.)
Eurozone Aug HCOB Manufacturing PMI (Final.)
Labour Day holiday in the US & Canada, markets closed.
Tuesday
Australia Q2 Net Exports of GDP, Current Account Balance
Eurozone Aug CPI (Prelim.)
Canada Aug S&P Global Manufacturing PMI
US Aug S&P Global Manufacturing PMI (Final.), ISM Manufacturing
Wednesday
Australia Aug S&P Global PMI (Final), Q2 GDP
RBA Governor, Michele Bullock speaks in Perth.
Eurozone Jul PPI, Aug HCOB Services PMI (Final.)
UK Aug S&P Global Services PMI (Final.)
US Jul Factory Orders, JOLTS Job Openings
Fed releases its Beige Book survey.
Thursday
Australia Jul Trade Balance, Household Spending
US Jul Trade Balance, Aug ADP employment, ISM Services, S&P Global Services PMI (Final.)
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