Australian dollar's understated uptrend gains new ground
The Australian dollar got everything it needed last week to sustain this low key uptrend into a 7th week: a hawkish RBA (albeit in messaging, less so in their forecasts), softer US July inflation data damping Fed hike expectations, and swirling questions about whether long term US Treasuries are "money good". Locally, there's plenty to animate the Australian dollar this week: July labour force, Q2 Wage Price Index, Westpac Consumer Confidence and remarks from RBA Deputy Governor Hauser.
Australian dollar's understated uptrend gains new ground
The Australian dollar got everything it needed last week to sustain this low key uptrend into a 7th week: a hawkish RBA (albeit in messaging, less so in their forecasts), softer US July inflation data damping Fed hike expectations, and swirling questions about whether long term US Treasuries are "money good". The Australian dollar's path higher last week however was anything but clean and consistent. Despite these bullish impulses throughout the week, all its net gains for the week were locked down on Friday.
Locally, there's plenty to animate the Australian dollar this week: July labour force, Q2 Wage Price Index, Westpac Consumer Confidence and remarks from RBA Deputy Governor Hauser. Offshore, US and European markets are in the throes of the August summer liquidity and participation lull. We will be watching the July FOMC minutes.
AUD's low-key uptrend breaks new ground into 0.7100
The Australian dollar repeatedly found a floor in the 0.7040-50 area last week and for much of the week was struggling to make sustained progress beyond 0.7070. Not even a soft US CPI did the trick with the Australian dollar spiking and reversing off 0.7090. Friday was different - these higher levels stuck. The initial catalyst was a notably weak US Jul retail sales, which triggered a clean, textbook 'lower yields, lower USD' move. US yields subsequently staged a sizeable rebound after the data - the back-end especially - and AUD/USD not only held gains but pushed to a fresh marginal high (0.7096), closing near it (0.7084).
The Australian dollar begins the week bumping up on the 0.71-handle and the price action carries a more spirited feel right here.
RBA keeps cash rate on hold
The RBA suprised no one by keeping policy unchanged last week and tweaking their projections to the slightly softer side. Trimmed mean CPI is now projected to end the year at 3.3%, from 3.5%, while their end-2026 unemployment projection (qtr avg) was revised to 4.5% from 4.3%. The bigger story for markets was that Governor Bullock downplayed the housing downturn after being repeatedly probed, and said, "it's quite possible we may need to raise rates again". Altogether, it was a case of hawkish vibes masking slightly softer forecasts.
The Australian dollar was whippy around the RBA - slipping 0.7060 to 0.7040 on the statement/softer forecasts - but reclaiming losses and then some on the hawkish press conference.
Softer US July CPI & retail sales
US July CPI and PPI data were non-threatening, but not massively disinflationary, and June PPI was revised +0.2% higher to 0.4%.
Retail sales fell -0.6%, the most since May 2025 which was attributed to a pullback in auto sales as well as payback in online spending.
It's an open question how the Fed is reading this. Surely two back to back reassuring CPI prints and two weak looking payrolls prints count for something. The centrist/dovish wing of the FOMC (half the committee as of the June dots) will surely stress the case for more patience. A 3-month payrolls average of +20k, soft hourly earnings and a household survey that has shed jobs almost every month in 2026, not to mention contained Jun/Jul CPI and a very weak Jul retail sales update is a tough one to hike into.
The concern for the hawks is the repeated inflation target misses, due to the compounding of supply shocks. Unfortunately for markets, there's no Fedspeak scheduled at all until the Jackson Hole annual conference at the end of this month.
Governor Bullock keeps optionality for a hike
While Bullock struck some hawkish notes last week, as a whole the RBA is not fuelling AUD upside the way it was late last year and early this year. This limits the breadth of AUD's upside potential on cross. That said, even without this, there is some forward momentum to speak of on some crosses.
AUD/NZD has been well supported in the mid to low 1.19s, although an RBNZ in the middle of a hiking cycle has left the pair capped above 1.21. AUD/NZD is trading just above 1.20 on Monday afternoon. AUD/EUR has also been fairly rangebound over the last few months on the balance of Iran war risks against a less hawkish RBA, and is trading near 0.6130. AUD/JPY has climbed almost JPY4 cents off its 31 July intervention lows and is trading just above 113.0.
US equities were mixed into the end of the week; while reassuring AI earnings delivered strong gains in the week prior, Israel's attacks on Lebanon and the possibility of US sanctions on Iran has led oil prices higher over the last week. S&P500 was up +0.4%, NASDAQ down -0.6% and NIKKEI up +5% over the last 5 days.
The week ahead
Focus this week shifts to the labour market, with Q2 wages data due (Wed) and the July employment (Thur). Markets will also be watching remarks from RBA Deputy Governor Hauser, alongside the FOMC July meeting minutes and soft business and consumer surveys.
Westpac expects employment to grow by 15k in July, with unemployment holding steady at 4.4%. Beyond headline figures, markets will be watching for further evidence that labour demand is cooling. Australia's labour market remains in reasonable shape, with June's strong jobs gain offset by a surge in labour force participation. The result points to a labour market that is broadly balanced rather than overly tight.
That said, signs of slack are starting to emerge. Underemployment has risen sharply in recent months, suggesting spare capacity is building beneath the surface and could see a gradual rise in unemployment down the line. A weaker than expected outcome would encourage the “end of cycle” narrative more than a stronger number would shift current valuations.
There is also the quarterly wages data and the consumer sentiment survey, which will provide insights into the impact of the ongoing housing correction on household spending intentions.
The release of China's July activity data has been delayed to 5pm AEST from its usual midday slot. While the reasons remain unclear, it is worth noting that the data will be released at a time of lower liquidity.
Soft business/confidence surveys and the FOMC July minutes are also due.
Monday
- US Aug Empire Manf. Survey
Tuesday
- Australia Aug Westpac Consumer Conf.
- UK Jun Labour Data
Wednesday
- NZ Q2 PPI
- Australia Q2 Wage Price Index, RBA Deputy Gov. Hauser speaks
- ECB President Lagarde speaks
- UK Jul CPI
- US Jul FOMC meeting minutes
Thursday
- Australia Jul Labour Data
- US Aug Philly Fed Business Outlook, Jul Conf. Board Leading Index
Friday
- Australia, Japan, Eurozone, UK & US Aug S&P Global PMI (Prelim.)
- Japan Jul National CPI
- UK Budget
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