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31 Jul 2024

31 Jul 2024

US rate cuts coming into view

• Positive vibes. Cooling US labour market conditions & US Fed hints that a rate cut in September is possible boosted risk sentiment & weighed on the USD.• AUD reversal. AUD recouped its post AU CPI losses. Core inflation still a long way from home. RBA hike risks extinguished but cuts still some time away.• BoJ moves. Larger than anticipated BoJ rate rise. Policy divergence is reviving the JPY. USD/JPY back below 150. AUD/JPY ~10% below July peak. A positive night for risk assets with signs of a cooling US labour market, moderating wage pressures, and signals from the US...

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31 Jul 2024

Fed Avoids Telegraphing Imminent Rate Cuts

As had been widely expected, the Federal Reserve left benchmark borrowing costs at a 23-year high for an eighth consecutive meeting this afternoon, but avoided providing anything resembling a clear easing signal. In the statement setting out the decision, officials acknowledged making “some further progress” toward their 2 percent inflation goal—implying more confidence in a sustained moderation than the “modest further progress” phrasing deployed in June—but noted that price growth still “remains somewhat elevated”. The Federal Open Market Committee said “Job gains have moderated, and the unemployment rate has moved up but remains low,” meaning that the “risks to achieving...

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31 Jul 2024

Canadian Dollar Pops, Greenback Falls On Relative Improvement

The Canadian economy accelerated toward the end of the second quarter, helping reduce market-implied odds on an aggressive easing cycle from the Bank of Canada. Numbers released by Statistics Canada this morning show real gross domestic product heading toward a 2.2-percent annualised gain in the three months ended June, above market forecasts and the Bank of Canada’s 1.5-percent estimate. The economy expanded 0.2 percent on a month-over-month basis in May, topping the 0.1-percent consensus as 15 of 20 economic sectors reported growth and goods-producing industries advanced. Manufacturers generated the biggest upside contribution—most likely on a rise in export demand—and retail...

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31 Jul 2024

Currency Market Price Action Begins to Accelerate

The Bank of Japan raised benchmark lending rates and announced plans to cut its monthly bond purchases by half in last night’s meeting, moving closer to unwinding an unconventional monetary policy programme that began in the late nineties. Surprising—but not shocking—market participants, the central bank under Governor Kazuo Ueda lifted the target for the uncollateralised overnight call rate to 0.25 percent, up from the previous zero-to-0.10 percent range, and said it would gradually reduce government bond purchases to around ¥3 trillion a month by early 2026, down from the current ¥6 trillion. With internal Bank forecasts pointing to a self-reinforcing...

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31 Jul 2024

CPI washes away RBA rate hike prospects

A surprise in the Q2 AU CPI, though for the first time in a few months it looks a bit more favourable for indebted households and businesses. While headline CPI nudged up inline with consensus forecasts to 3.8%pa, the important core inflation measure (i.e. the trimmed mean) was a touch softer than built up expectations. Core inflation rose 0.8% in Q2 with the annual rate slipping to 3.9%pa (chart 1). We think this should see the RBA hold fire and keep interest rates steady at its 6 August meeting. The unwind in Australian interest rate expectations, and paring back of...

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