AUD Hits Pause as Rate Outlook Pondered

AUD

The Aussie Dollar was flat on Tuesday as concerns about U.S. tariffs and central bank independence hamstrung the USD, offsetting a dovish outlook for interest rates locally. Yesterday, minutes of the Reserve Bank of Australia's July board meeting confirmed further interest rate cuts lay ahead and the recent decision to hold the cash rate at 3.85% was largely because the majority did not want to be seen easing too quickly. One of the key arguments for the interest rate hold was that Australia's labour market had not loosened. Since the board meeting, domestic labour data was released much weaker than expected, with the Unemployment Rate spiking to a 3.5-year high of 4.3%. As a result, markets imply almost a 100% chance that the RBA will deliver a 25bps cut to 3.6% at the August 12 meeting and take the cash rate to 3.1% by the end of the year. A mixed day for Asia equities saw the Shenzhen exchange +0.8%, Hang Seng +0.4% and Nikkei -0.1%. Locally the ASX gained +0.1%, as materials and health care sectors lead the pack +2.4% and +2.1%. We'll see the MI Leading Index today and Flash PMIs tomorrow. 
 

USD

AUD/USD opens at 1-week highs of 0.6552, trading a 0.8% range yesterday with the Greenback taking a hit as Trump's tariff deadline looms. Investors are tracking talks ahead of the August 1 tariff deadline that could bring steep tariffs on products of U.S. trading partners that fail to strike deals. A mixed session on Wall St. saw the Dow Jones close +0.4%, the Nasdaq -0.4%, and the S&P 500 unchanged on the day. Overnight, the Richmond Manufacturing Index fell to -20, with Fifth District manufacturing activity deteriorating in July. No key U.S. data ahead of Unemployment Claims and Flash PMIs, tomorrow evening.
 

EUR

AUD/EUR opens flat on yesterday's open at 0.5582, touching 0.5562 lows in the evening before jumping 0.5% to 0.5592, then retracing to current levels. The DAX was -1.1% and CAC was -0.7%. The European data calendar is quiet ahead of tomorrow evening's Flash PMIs and European Central Bank interest rate decision. There is little chance of a chance in policy from the ECB. Markets are discounting the next cut in December, which would bring the key interest rate to 1.9%. Currently, markets suspect that it will be the terminal rate, but there is about a 1-in-3 chance of a cut next year discounted.
 

GBP

AUD/GBP opens at 0.4846, trading between 0.4825 and 0.4849 yesterday. The FTSE ended the session +0.1%. Bank of England Governor Bailey delivered little notable remarks overnight. No UK data set for release today. Tomorrow evening, we'll see Flash PMIs. Like in the Eurozone, further expansion is expected in the services sector, while the manufacturing slump is expected to continue.
 

NZD

AUD/NZD touched 6-day highs of 1.0957 yesterday afternoon before falling off overnight to start the day at 1.0920. Kiwi data is done and dusted for the week. The highlight was a surprise quarterly inflation print at +0.5% (expectations +0.6%, previously +0.9%). The annual rate of inflation ticked up to 2.7%, although remains within the RBNZ's target band of 2-3%.