With Asian markets in a more cautious mood after being wrongfooted by the overnight sell-off on Wall Street, the focus this morning has been on the RBA Board meetings for July.
The RBA minutes noted the Board debated the merits of raising interest rates by 25 basis points or 50 basis points before opting for 50bp after “Members agreed that arguments for raising interest rates by 50basis points were stronger.”
The minutes also noted that “the level of interest rates was still very low for an economy with a tight labour market and facing a period of higher inflation.” Before stating that while “short-term inflation expectations had risen with actual inflation, longer-term measures of inflation expectations were well anchored.”
This could be interpreted as ruling out a larger 75bp rate hike when the Board next meets in early August. However the minutes also noted that “The size and timing of future interest rate increases will continue to be guided by the incoming data and the Board’s assessment of the outlook for inflation and the labour market.”
Fresh in the Board’s mind when it meets in August will be last week’s thumping labour market report, as well as next week’s Q2 inflation data. While our base case is for a 50bp rate hike in August, taking the cash rate to 1.85%, the interest rate market is 20% priced for a 75bp hike and larger rate hike cannot be ruled out.
Can the AUDUSD extend this week’s gains?
The AUDUSD traded to a high of .6851 yesterday on optimism that China would act to halt the slump in its economy and the property sector by allowing homeowners to temporarily stop mortgage payments on stalled property projects without incurring any impact on credit scores.
However, against the backdrop of next week’s FOMC meeting, which will see another 75bp Fed rate hike, rising Covid cases in China and fears of recession, the case for a more substantial rally at this point is limited to a band of medium term resistance at .6975/00.
However, a sustained close above downtrend resistance .7000c would see the AUDUSD break its 3-month downtrend from the April .7661 high and indicate a stronger rally can develop.
AUDUSD Daily Chart 19th of July 2022
Source Tradingview. The figures stated are as of July 19th 2022. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation