USD weaker as inflationary pressures ease
The US dollar was mostly lower overnight with the US closed for the Independence Day holiday and recent economic data suggesting inflationary pressures were easing across the United States.
This data, including a lower-than-expected PCE reading on Friday and a drop in the “prices paid” components of Monday’s PMI numbers, is at odds with the most recent rhetoric from the Federal Reserve. Last week, at the European Central Bank conference in Portugal, Fed chair Jerome Powell suggested that consecutive rate hikes in July and September were a real possibility.
The weaker US dollar saw the Australian dollar gain, with the AUD/USD up 0.3%.
The USD/SGD fell 0.1% while the USD/CNH continued to turn sharply lower from six-month highs, down 0.3%.
The NZD/USD was the best performer, up 0.6%.
In other markets, the euro struggled, with the EUR/USD down 0.3%, while the USD/JPY remains stuck under the key intervention threshold of 145.00.
Looking forward, tonight’s Federal Reserve minutes from their 15 June decision, at which the central bank kept rates on hold, might drive more volatility in the USD.
RBA holds, but more hikes still likely
The Australian dollar was higher despite the Reserve Bank of Australia decision to keep interest rates on hold yesterday.
Expectations for the decision were almost evenly split ahead of the decision with a slim majority of economists expecting a hike but the market pricing in a hold as slightly more likely.
As we saw in April, the RBA decided not to hike rates, but said further hikes are likely, and the decision to hold was seen as giving the RBA time to assess the impact of earlier hikes on the Australian economy. The RBA said: “further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe, but that will depend upon how the economy and inflation evolve.”
The consensus view now suggests the RBA still hike one or two more times before pausing. Financial market pricing suggests one more hike to be completed by September.
Chinese green shoots?
Today, the focus will be on the Chinese Caixin services PMI numbers, after Monday’s manufacturing PMI produced a rare, better than expected result.
On Monday, the Caixin manufacturing PMI number was reported at 50.5, above forecasts for 50.0.
After a sequence of rate cuts last month from the People’s Bank of China, markets are closely watching Chinese data for any signs of recovery.
The manufacturing numbers boosted sentiment across the region, with the Chinese yuan and commodities notably higher.
Crude oil neared a two-week high while iron ore approached a two-month high – higher commodity prices have also provided support to the AUD and NZD this week.
Aussie gains despite RBA hold
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 3 – 7 July
All times AEST
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
