Written by Steven Dooley, Head of Market Insights, and Shier Lee Lim, Lead FX and Macro Strategist
Aussie CPI, BoJ key for today’s trading
FX markets are set for a massive 24 hours with Australian inflation numbers, China’s activity releases, and key policy decisions from the Bank of Japan and Federal Reserve due.
Both the Australian inflation number and Bank of Japan decision will be key for the next moves in the Australian dollar and Japanese yen.
The Aussie has fallen over the last fortnight – in line with losses in US sharemarkets – but started July as one of the strongest currencies on expectations the Reserve Bank of Australia might need to raise rates further.
Today’s inflation number, due at 11.30am AEST, is forecast to see the headline annual number climb from 3.6% in the March quarter to 3.8% in the June quarter. The trimmed mean, the RBA’s preferred measure, is forecast to remain steady at 4.0%. The result will be key ahead of next Tuesday’s RBA decision.
Australian retail sales numbers are also due today.
From the BoJ, market pricing sees a 54% chance of a 25bps hike (source: Bloomberg). The USD/JPY fell another 0.9% yesterday – and is now down 5.9% from its July highs – as rising expectations for a BoJ hike boosted the JPY.
The Japanese yen has gained in most other markets with the AUD/JPY falling from above 109.00 to below 100.00 in less than three weeks. There’s no precise time for the BoJ decision but it will likely be some time after 12.00pm Tokyo time (1.00pm AEST).
Fed to set tone for H2
From the Fed, rates are expected to stay on hold at the July FOMC meeting.
While a September rate cut is probably in the works, officials may be reluctant to make any firm announcements. Since the June meeting, US data has remained mostly positive.
A slowing labour market and progress on inflation should be acknowledged in the meeting statement.
Powell’s press conference will probably note recent dovish developments while highlighting the data dependence of future cuts, without making any firm commitments regarding future policy actions.
The USD index recently reached three-week highs. If the Fed is reluctant to signal a rate cut at this meeting, the greenback could gain further.
Chinese yuan sensitive to growth outlook
In terms of global growth, China’s PMI numbers might be the most important in the medium term.
Because of the historically low Emerging Industries PMI (EPMI), we anticipate that the official manufacturing PMI will decline to 49.2 in July from 49.5 in June.
A non-seasonally adjusted leading indicator of the official PMI, China’s Emerging Industries PMI fell by 3.2 percentage points to 46.3 in July from 49.3 in June.
The July print was well below the average of 49.1 for the period of 2014–2023 and remained at a historical low.
The fact that the PBoC is willing to lower interest rates and is letting the USD/CNY fix rise indicates that it is comfortable with some CNY weakness.
Japanese yen at highs ahead of BoJ
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 29 July – 3 August
All times AEST
*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.
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