Daily Brief

The long dollar unwind continues

Another 50bps hike from the RBA

The RBA delivered another 50bps rate hike in Australia overnight, raising rates to 1.85% in the process, in a move that had been widely expected by markets. Whilst the hike may have been their fourth move during this year, markets were left feeling less certain that the RBA are likely to hike at such a pace moving forward. In their statement, the RBA said that ‘The central bank is not on the pre-set path in normalizing rates’. The RBA also said that Australia’s economy would grow slower than the previous RBA forecasts released in their May statement on monetary policy. That was all enough to stir the attention of the Aussie bears, who promptly drove AUD/USD back to 0.6950, having been over 0.7000 ahead of the RBA’s announcement.

Bad is still good

The latest U.S ISM Manufacturing PMI came out at 52.8 on the headline, slightly better than the forecast of 52, but still down from last month’s 53 reading, and highlighting how U.S Manufacturing is only just about in expansionary territory. However, the ‘prices paid’ component also dropped from 78.5 in June to 60 last month, highlighting how quickly the price pipeline is weakening. Whilst that may reflect the lowest print since the middle of 2020, ‘prices paid’ generally leads CPI by between 4-6 months, which may give some much-needed evidence that inflation could finally cool further down the road.

The greenback falters

That news helped to ensure that the dollar started the new month in the same vein as it finished last, with further declines across the board. The broad dollar index (DXY) slipped below 105.00 for the first time in a month. GBP/USD continues to consolidate the recent gains over 1.2000, marking a top near 1.2300 yesterday, as we approach what could be the biggest BoE rate hike for a quarter of a century later in the week. Whilst 50bps is on the table, it is by no means nailed to it, so the pound may be subject to higher volatility come Thursday. According to a recent poll by Citi/YouGov, long-term UK consumer inflation expectations (5-10 years) have fallen from 4% to 3.8%. That represents the first drop in four months. EUR/USD also continues its recent consolidation back over parity, moving back over 1.0250 yesterday. There was a bit of a mix-bag on the latest PMI readings throughout the region, with Italy and Spain moving below 50, partially offset by a slightly higher region-wide print.

Loonie gains halted, as oil slides lower

USD/CAD moved as low as 1.2765 at one point yesterday, a level not seen in nearly two months. However, with oil slipping around 5% on the day on weak Chinese demand, the gains for the Loonie were short-lived, and the pair rallied back over 1.2825 by the end of the European session. That rally may be somewhat limited by the widespread greenback weakness. USD/JPY is also worthy of a mention, having been as high as 139.00 on the 14th July, the pair slipped back to under 132.00 yesterday afternoon, clearly illustrating the recent dollar weakness. Indeed, we have moved within a whisker of 130.00 this morning, as the dollar unwind accelerates.

New Zealand Employment

Later this evening will see the release of the latest NZ Unemployment report. Overall unemployment is forecast to decline from 3.2% to 3.1%, with a 0.4% gain in employment. The labour force participation rate should move back over 71%. Ahead of the release, NZD/USD rallied over 0.6350 yesterday for the first time since the middle of June.

What else is happening today?

CHF – SECO Consumer Climate, SVME Purchasing managers’ Index

CAD – S&P Global Manufacturing PMI

USD – Redbook Index, JOLTS Job Openings, Total Vehicle Sales, API Weekly Crude Oil Stock

NZD – Employment Change, Labour Cost Index, Participation rate, Unemployment

AUD – S&P Global Composite PMI/Services PMI

Speakers: Fed’s Bullard, Evans

 

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