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Daily Pivots: (S1) 0.6451; (P) 0.6492; (R1) 0.6530; More...

Intraday bias in AUD/USD stays mildly on the downside at this point. Fall from 0.6594 is tentatively seen as a correction to rise from 0.5913. Deeper fall would be seen to 38.2% retracement of 0.5913 to 0.6594 at 0.6334. Strong support could be seen there to bring rebound. For now, near term outlook is neutral as long as 0.6594 resistance holds, and more consolidations would be seen.

In the bigger picture, there is no clear sign that down trend from 0.8006 (2021 high) has completed. Rebound from 0.5913 is seen as a corrective move. While stronger rally cannot be ruled out, outlook will remain bearish as long as 38.2% retracement of 0.8006 to 0.5913 at 0.6713 holds. Nevertheless, considering bullish convergence condition in W MACD, even in case of another fall through 0.5913, downside should be contained above 0.5506 (2020 low).

Daily Pivots: (S1) 1.3698; (P) 1.3736; (R1) 1.3792; More...

Intraday bias in USD/CAD remains mildly on the upside for the moment. Corrective pattern from 1.3538 is extending with the third leg. Further rise would be seen to 1.3797 resistance and possibly above. On the downside, break of 1.3650 minor support will bring retest of 1.3538/55 support zone instead.

In the bigger picture, price actions from 1.4791 medium term top could either be a correction to rise from 1.2005 (2021 low), or trend reversal. In either case, further decline is expected as long as 1.4014 resistance holds. Next target is 61.8% retracement of 1.2005 (2021 low) to 1.4791 at 1.3069.

Dollar eased slightly in today's Asian session but remains firmly in the lead as the top-performing currency for the week. Fed Governor Christopher Waller reignited the debate over rate cuts, calling for easing as soon as this month. But his comments — timed just ahead of the Fed’s blackout window — failed to shift expectations. Market pricing still implies overwhelming odds of over 97% for no change in July.

The lack of reaction is telling. Waller, though vocal, isn’t seen as representing the majority view, particularly in light of steady inflation and resilient growth. As a voting committee, the FOMC doesn’t take marching orders from a single official — not even the Chair, whose own independence has been under political pressure recently. Markets appear unconvinced that Waller’s remarks signal any imminent pivot. After all, the consensus leans toward staying on hold and watching how tariffs evolve after August 1 tariff truce deadline.

That patience looks justified. US jobless claims fell more than expected and retail sales rebounded, suggesting consumers are recovering from tariff-related uncertainty without a major hit to spending. That resilience is also reflected in risk sentiment, with S&P 500 and NASDAQ both notching fresh record highs overnight.

In FX, Dollar is still the strongest performer this week, trailed by the Loonie and Sterling. At the other end, Aussie has been the weakest following disappointing jobs data, while Kiwi and Yen also struggled. Euro and Swiss Franc are sitting near the middle of the weekly performance table.

Meanwhile, crypto markets are watching Washington closely. The US House passed the long-anticipated Genius Act, establishing a regulatory framework for dollar-pegged stablecoins. The bill received strong bipartisan support and is expected to be signed by US President Donald Trump. It marks a major legislative win for the digital asset industry, which has invested heavily in shaping crypto policy.

While Bitcoin turned sluggish this week, Ethereum is surging. Technically, Ethereum is clearly in upside acceleration as seen in D MACD. Immediate focus is now on 100% projection of 1382.55 to 2879.27 from 2100.58 at 3607.30. Decisive break there will pave the way through 4000 psychological level to 161.8% projection at 4532.23. In any case, near term outlook will now stay bullish as long as 2879.27 resistance turned support holds.

In Asia, at the time of writing, Nikkei is down -0.20%. Hong Kong HSI is up 0.73%. China Shanghai SSE is up 0.34%. Singapore Strait Times is up 0.54%. Japan 10-year JGB yield is down -0.021 at 1.539. Overnight, DOW rose 0.52%. S&P 500 rose 0.54%. NASDAQ rose 0.75%. 10-year yield rose 0.008 to 4.463.

Fed’s Waller sees no reason to wait, backs immediate rate cut

Fed Governor Christopher Waller reinforced his call for a July rate cut, arguing that the policy rate is too restrictive given current economic conditions.

In a speech, Waller emphasized that recent tariffs will only cause a "temporary surge" in prices, not a sustained increase in inflation, and that standard monetary policy practice is to "look through" such one-off price-level shocks as long as expectations remain anchored.

Waller pointed to sluggish growth and moderate inflation as reasons for a cut. He noted that real GDP likely expanded just 1% in the first half of 2025 and is expected to remain soft for the rest of the year—well below FOMC estimates of longer-run growth. With unemployment near 4.1% and inflation close to 2% when tariff effects are stripped out, Waller said policy "policy rate should be around neutral", not nearly 125–150 basis points above the estimated neutral rate of 3%.

Waller also flagged labor market fragility, suggesting that once data revisions are accounted for, private payroll growth is “near stall speed.” With risks to jobs increasing and inflation pressures fading, Waller said, “We should not wait until the labor market deteriorates before we cut the policy rate.”

Fed’s Daly backs two cuts this year, sees tariff impact as muted

San Francisco Fed President Mary Daly said two interest rate cuts this year remain a “reasonable” baseline, as the inflation from tariffs appears less severe than initially feared. Speaking overnight. She projected the policy rate could ultimately stabilize around 3% or slightly above.

Daly downplayed the precise timing of the next move, saying, “Whether it happens in July or September or some other month is really not the most relevant piece.” What matters, she argued, is that the Fed stays on track to avoid overtightening and harming the labor market. “We don’t want to unnecessarily tighten the economy in a way that hurts the labor market or growth,” Daly added.

She also emphasized that bringing inflation down the “last mile” doesn’t require a sharp slowdown. “I wouldn't want to see more weakness in the labor market,” Daly said. “Which is why you can’t wait forever” to cut rates.

Japan CPI core cools to 3.3% on energy, but food and services prices still climb

Japan’s core consumer inflation slowed in June for the first time in four months, driven by easing energy prices. Core CPI, which excludes fresh food, decelerated from 3.7% yoy to 3.3% yoy, in line with expectations. While still above the BoJ’s 2% target — where it's been since April 2022 — the moderation suggests waning energy cost pressures. Headline CPI also dipped to 3.3% from 3.5% in May.

However, underlying price pressures remain sticky. The core-core CPI, which excludes both fresh food and energy, rose from 3.3% yoy to 3.4% yoy, highlighting persistent inflation in services and food. Services inflation ticked up from 1.4% yoy to 1.5% yoy. Food prices excluding fresh items surged 8.2% yoy, up from 7.7% yoy. Rice inflation eased marginally but remains historically elevated at 101.7% yoy.

USD/CAD Daily Outlook

Daily Pivots: (S1) 1.3698; (P) 1.3736; (R1) 1.3792; More...

Intraday bias in USD/CAD remains mildly on the upside for the moment. Corrective pattern from 1.3538 is extending with the third leg. Further rise would be seen to 1.3797 resistance and possibly above. On the downside, break of 1.3650 minor support will bring retest of 1.3538/55 support zone instead.

In the bigger picture, price actions from 1.4791 medium term top could either be a correction to rise from 1.2005 (2021 low), or trend reversal. In either case, further decline is expected as long as 1.4014 resistance holds. Next target is 61.8% retracement of 1.2005 (2021 low) to 1.4791 at 1.3069.

Key Highlights

• USD/JPY gained pace for a move above 148.50 before there was a pullback.
• A connecting bullish trend line is forming with support at 148.00 on the 4-hour chart.
• EUR/USD is showing signs of weakness below the 1.1700 level.
• GBP/USD could gain bearish momentum if there is a close below 1.3350.

USD/JPY Technical Analysis

The US Dollar remained supported above the 146.50 level against the Japanese Yen. USD/JPY broke hurdles near 147.50 and 148.00 to enter a positive zone.

Looking at the 4-hour chart, the pair settled below the 148.00 zone, the 100 simple moving average (red, 4-hour), and the 200 simple moving average (green, 4-hour). A high was formed near 149.20 before the pair started a consolidation phase.

On the upside, the pair could face resistance near the 149.00 level and the trend line. The next key resistance sits near the 149.20 level. A close above the 149.20 level could set the pace for another increase.

In the stated case, the pair could rise toward the 150.00 resistance. The next major stop for the bulls could be near the 151.20 resistance.

On the downside, immediate support is near the 148.00 level. There is also a connecting bullish trend line forming with support at 148.00 on the same chart. The next key support sits near 147.45. Any more losses could send the pair toward the 146.50 support zone.

Looking at EUR/USD, the pair is struggling to start a fresh increase and might decline further below the 1.1550 level.

Upcoming Economic Events:

• US Housing Starts for June 2025 (MoM) – Forecast 1.30M, versus 1.256M previous.
• US Building Permits for June 2025 (MoM) – Forecast 1.390M, versus 1.394M previous.
• Michigan Consumer Sentiment Index for July 2025 (Prelim) – Forecast 61.5, versus 60.7 previous.

Japan’s core consumer inflation slowed in June for the first time in four months, driven by easing energy prices. Core CPI, which excludes fresh food, decelerated from 3.7% yoy to 3.3% yoy, in line with expectations. While still above the BoJ’s 2% target — where it's been since April 2022 — the moderation suggests waning energy cost pressures. Headline CPI also dipped to 3.3% from 3.5% in May.

However, underlying price pressures remain sticky. The core-core CPI, which excludes both fresh food and energy, rose from 3.3% yoy to 3.4% yoy, highlighting persistent inflation in services and food. Services inflation ticked up from 1.4% yoy to 1.5% yoy. Food prices excluding fresh items surged 8.2% yoy, up from 7.7% yoy. Rice inflation eased marginally but remains historically elevated at 101.7% yoy.

Fed Governor Christopher Waller reinforced his call for a July rate cut, arguing that the policy rate is too restrictive given current economic conditions.

In a speech, Waller emphasized that recent tariffs will only cause a "temporary surge" in prices, not a sustained increase in inflation, and that standard monetary policy practice is to "look through" such one-off price-level shocks as long as expectations remain anchored.

Waller pointed to sluggish growth and moderate inflation as reasons for a cut. He noted that real GDP likely expanded just 1% in the first half of 2025 and is expected to remain soft for the rest of the year—well below FOMC estimates of longer-run growth. With unemployment near 4.1% and inflation close to 2% when tariff effects are stripped out, Waller said policy "policy rate should be around neutral", not nearly 125–150 basis points above the estimated neutral rate of 3%.

Waller also flagged labor market fragility, suggesting that once data revisions are accounted for, private payroll growth is “near stall speed.” With risks to jobs increasing and inflation pressures fading, Waller said, “We should not wait until the labor market deteriorates before we cut the policy rate.”

Full speech of Fed's Waller here.

San Francisco Fed President Mary Daly said two interest rate cuts this year remain a “reasonable” baseline, as the inflation from tariffs appears less severe than initially feared. Speaking overnight. She projected the policy rate could ultimately stabilize around 3% or slightly above.

Daly downplayed the precise timing of the next move, saying, “Whether it happens in July or September or some other month is really not the most relevant piece.” What matters, she argued, is that the Fed stays on track to avoid overtightening and harming the labor market. “We don’t want to unnecessarily tighten the economy in a way that hurts the labor market or growth,” Daly added.

She also emphasized that bringing inflation down the “last mile” doesn’t require a sharp slowdown. “I wouldn't want to see more weakness in the labor market,” Daly said. “Which is why you can’t wait forever” to cut rates.

Last week’s RBA decision and Trump’s recent tariff escalation both highlight the need to take organisational dynamics and human psychology into account.

• While there was nothing economically to be gained by the RBA waiting to cut rates, neither was there any material policy cost. Psychological and organisational factors therefore might have come into play, with the RBA taking the opportunity to assert some independence.
• Not paying enough attention to these psychological issues was a mistake, and thus a learning opportunity.
• Psychological factors are also at play in global tariff negotiations. If people think you will chicken out, you set out to prove them wrong. Asserting dominance is another psychological factor at work in the international sphere. This complicates analysis and prediction, but economic fundamentals still matter as well.

Try, Even After Catching Heat

Since last week’s surprising RBA Monetary Policy Board meeting, countless pixels have been spilt trying to understand the central bank’s rationale. There was no real economic benefit to waiting five more weeks. This week’s labour force data would not have tipped a decision to cut in August back to a decision to hold, even if the data had not shown the softening in employment and kick up in the unemployment rate in the month.

The third month of CPI data will also not add much new information to support a continuing hold. Recall that even with a partial monthly CPI indicator, once the second month of the quarter is in, you already have two-thirds of the ultimate quarterly read. This is true no matter how much of the index is measured monthly. Two out of three months of the data measured monthly are available and so are two-thirds of the components that are only measured in one of the three months in the quarter, assuming these are evenly distributed across the three months. (This is why the Governor’s comment that the monthly inflation data was ‘a little too volatile and not quite representative of what’s really going on with inflation’ misses the mark. It is a true statement about the headline monthly indicator, but that is not how people are using the data.)

Neither was there much of a cost to waiting, though. As we have previously noted, the dirty little secret of monetary policy is that small differences in the level of interest rates or the timing of changes make essentially no difference for inflation outcomes. If holding the cash rate 100bp lower for a year only boosts inflation by 0.2%pt or so – broadly the result from the RBA’s main model – then 25bp higher for five weeks is not even a rounding error.

It’s a natural human temptation to want to minimise error. After all, we did warn that a cut in July was not a shoo-in, and three of the nine Board members voted against the decision, and presumably in favour of a cut. But we must face into those wrong calls and own them if we are to learn from them. The lesson here is to keep trying to understand, even after a wrong prediction.

Firstly, I underestimated how much we humans can get stuck in a narrative. It was one thing to push back on a market that was focused on the ‘but they discussed 50bps!’ argument and an apparent downward revision to views of the neutral rate. It was quite another to believe that the RBA would keep clinging to the idea that inflation was too high because one very lagged (but important) measure was at 2.9%. Our own assessment, based on more recent data, was that the current pulse of trimmed mean inflation is closer to the midpoint of the 2–3% target range than that. Perhaps because we were so clear on our own view of the inflation pulse, I underweighted the possibility that the RBA would stick to a different view despite the latest monthly data. Put another way, I overweighted what I thought the RBA should do over what I suspected they would do.

Secondly, I underestimated the psychological element. We knew that the RBA is not the Fed in terms of its comfort with surprising the market. And it has become clear that the RBA Governors would regard it as pre-empting the Monetary Policy Board to guide the market ahead of a meeting and a decision being made; this is one of the drawbacks of having a majority of outside members on a committee making a market-sensitive technical decision.

More importantly, though, I should have given some weight to the idea that the RBA insiders might use a relatively costless (from a policy perspective) five-week wait to signal the institution’s independence. The last thing a central bank wants is to be seen as not independent, including from the markets. Cutting the cash rate in July, rather than the RBA’s original preference for a ‘cautious and predictable’ quarterly pace coinciding with fresh forecasts, would have looked a bit like the market pricing forced the cut. Avoiding that impression was probably viewed inside the RBA as being worth the subsequent criticism.

Trump Escalates And Causes Havoc

A similar ‘you’re not the boss of me’ instinct can be seen in recent US tariff developments.

Much has been made of the ‘Trump Always Chickens Out’ idea, first mooted by Rob Armstrong of the FT ‘Unhedged’ newsletter. Perhaps, though, it would have been better framed as ‘Trump Ambit Claims Often’ – a description of a negotiating strategy rather than the suggestion of a character flaw. Because once the idea began to circulate, it was natural human psychology – not even specific to President Trump – to want to prove it wrong.

Thus we see the US administration not only not chickening out, but in some cases escalating its tariff demands. In many cases this is a negotiating tactic to get countries to offer further concessions or reach a deal at all. The administration may also have been emboldened by the sanguine response of financial markets to recent developments, as well as the relatively muted effect evident in recent US inflation data. Meanwhile, countries that have reached a deal have achieved a lower US tariff rate than was originally announced in April.

Another element of this recent escalation is continuing the dominance display that these tariffs always represented. They are as much about showing the world who is boss – or, as the White House itself put it, “Keeping America in the Driver’s Seat” – as about actual economic policy goals.

Economic fundamentals still apply. The tariffs are still an act of inflationary self-harm, so the default presumption should be that re-escalations are negotiating tactics, not the likely end state. And to the extent that specific goods are not already produced in the United States, relative tariffs will matter as well as absolute tariff levels. Countries facing a 10% or 20% tariff should therefore not feel too despondent about it.

That said, we are more in the realm of psychology than economics and must proceed accordingly. While de-escalation from ambit claims is still the likely outcome for most countries, temporary blow-ups cannot be ruled out. A lot will depend on other governments striking the right balance between belligerence and obsequiousness. Governments and outside observers alike will need to pay attention to the psychology – and learn from their own and others’ past errors.

Key insights from the week that was.

In Australia, the main event this week was the June Labour Force Survey. It was another disappointing read for job creation (+2k) that left employment effectively flat over May and June. Growth is still coming off a high base though, annual growth holding at 2.3%yr on a three-month average basis. However, it is also telling that average hours worked posted a significant decline (–1.0%), falling short of the long-run trend and providing an explanation for why underemployment ticked up to 6.0%.

The most notable and surprising development in the report was the unemployment rate’s 0.2ppt increase to 4.3% after five consecutive months at 4.1%. This looks to have been driven by a material increase in youth unemployment (ages 15-24), up 0.9ppts to 10.4% in June. While there is likely some noise in the mix, moves of this magnitude in the past have often preceded a grind higher in total unemployment.

The May and June labour market updates suggest a gradual softening in conditions may be resuming after the recent period of resiliency. Having remained on hold in July, this data adds weight to the already-strong case for a 25bp rate cut at the RBA’s August meeting.

Also of note for Australia this week, the Westpac-MI Consumer Sentiment index highlighted households’ disappointment with the RBA’s July decision. The responses received prior to the decision equated to a reading of 95.6, while those surveyed after came in at 92.0. The net result was a modest rise in overall sentiment, up 0.6% to 93.1 in July. This ‘cautiously pessimistic’ reading reflects the enduring impact of earlier cost-of-living pressures on real incomes and consumption, as evinced by ‘family finances vs. a year ago’ and ‘time to buy a major household item’ remaining 10% and 21% below their respective long-run averages. Households remain confident over the prospect of interest rate relief over the year ahead, however. At the margin, this should support a gradual recovery in finances and spending.

Rumours and debate over the future of US trade policy again filled global headlines this week, the most significant discussion being around a mooted industry tariff for pharmaceutical imports which would start at a low rate but could rise to as much as 200%.

US data meanwhile offered an update on the impact of tariffs on consumer inflation to date. The pull-forward of imports ahead of tariff implementation, the modest 10% tariff rate for most nations during the 90-day negotiation period and soft consumer demand all arguably limited passthrough in June. Still, in the CPI detail there is clear evidence of firms beginning to pass higher costs on, where possible.

Within core goods, inflation for household furnishings, apparel and recreation items all lifted noticeably, respectively to 1.0%, 0.4% and 0.4%. Used and new vehicles (-0.7% and -0.3%) were the counterpoint, likely weighed down by weak demand – durables consumption having declined at a near 4% annualised pace in Q1 GDP and the Atlanta Fed’s nowcast for Q2 GDP consistent with further weakness in total consumption. While hard to distinguish, the 0.3% gain for food was also likely supported by tariffs given the proportion of US food imported from Mexico and Canada and it’s comparatively short shelf life. Helpfully for the overall consumer inflation view and expectations is that shelter inflation continues to decelerate, registering a 0.2% gain in June, equivalent to a 2.5% annualised rate compared to the 3.8% growth between June 2024 and June 2025.

Based on producer price inflation, which decelerated from 3.2%yr to 2.6%yr after a flat result in June, and the fact that tariff increases have been delayed until at least 1 August, the impact of tariffs on inflation is likely to remain modest in the very near term. Still, with business margins coming under pressure and firms needing to invest to maintain capacity let alone expand it, it is inevitable that price increases at the wholesale level will feed through to end users. The alternative is to cut other costs, which would most likely mean a reduction in hours worked and wages growth. Our base case for the US remains inflation between 2.5%yr and 3.0%yr for an extended period despite sub-trend activity growth, limiting the FOMC’s ability to ease.

These are views consistent with the qualitative guidance from the Federal Reserve’s Beige Book. In the July edition, respondents referenced “modest to pronounced input cost pressures related to tariffs, especially for raw materials used in manufacturing and construction” and that “Many firms passed on at least a portion of cost increases to consumers through price hikes or surcharges, although some held off raising prices because of customers' growing price sensitivity, resulting in compressed profit margins”. Economic activity was said to have increased “slightly” and employment “very slightly”.

In China meanwhile, year-to-date growth of 5.3% at June means authorities’ 5.0% growth target for the calendar year is within reach. The composition of growth remains fragile, however, with consumers continuing to hold back on discretionary spending and unwilling to commit to new property investment. Despite the stimulus efforts to date, retail sales has grown at a solid, but not strong, 5.0%ytd while property investment remains down around 11%ytd and new/used property prices continue to fall. Property investment remains the biggest negative for total fixed asset investment, which at June is up 2.8%ytd, though two of the three sub-components for high-tech manufacturing (electrical machinery and chemicals) are now also declining after stellar growth in recent years and the contribution from utilities investment is highly disproportionate to its share of the economy. Foreign trade continues to provide support for aggregate growth, the trade surplus jumping back near January’s record high in June. However, net export’s contribution to GDP will naturally fade, requiring a meaningful lift in domestic demand’s contribution if our 4.6% growth forecast for 2026 is to be achieved, let alone a rate closer to 2025’s 5.0%.

Finally then to the UK. Inflation accelerated to 3.6%yr in June, 3.7%yr on a core basis, as services inflation held at 4.7%yr. In May, average weekly earnings decelerated to 5.0%yr as the unemployment rate ticked up to 4.7%. Alongside other measures like the Decision Maker Panel Survey, this data suggests the labour market is continuing to soften and that inflation risks are likely to be concentrated on the supply-side. Over the coming year, our base expectation remains a gradual policy easing by the Bank of England to a near-neutral level.

• We expect the ECB to leave the deposit unchanged at 2.00% on Thursday 24 July in line with consensus and market pricing. We expect Lagarde to reiterate the data dependent approach and leave the door open for September, without giving firm signals as data has been limited.
• We expect a final 25bp cut to 1.75% in September due to a weakening services sector, slowing wage growth and elevated trade uncertainty though risks lean towards no cut as ECB members emphasize their “good position” and downplay inflation undershooting concerns.

We expect the ECB to keep the deposit rate unchanged at 2.00% on Thursday 24 July in line with consensus and market pricing. The hawkish shift at the June meeting has removed expectations for a cut in July. Focus next week will be on any signals about the September meeting where markets currently price 10bp worth of cuts. ECB communication has been very unanimous since the June meeting and most GC members have echoed that ECB is in a ‘good position’, while Schnabel (hawk) said that the bar for another cut is very high. The ECB has been downplaying the fact that inflation is expected to temporally undershoot the 2% target as long as medium-term inflation expectations are anchored. The June meeting minutes stated a view that monetary policy ‘should become less reactive to incoming data’ and ‘only large shocks would imply the need for a monetary response’. Hence, we expect no cut at the July meeting while projecting a final cut in September to 1.75% with risks tilted towards an unchanged decision.

We continue to project a cut in September given the trade war risk, a weakening services sector and slowing wage growth that could impact medium-term inflation expectations. The outcome of the tariff negotiations will be important for monetary policy setting going forward as tariffs higher than 10% on the EU would deviate from the ECB’s baseline assumptions. Lately, the risk of a larger 30% tariff has increased, which argues for further easing. We expect the trade war uncertainty to lead Lagarde to reiterate that the ECB is data dependent, thereby not precommitting or closing the door for a cut in September as they await further data.

Incoming data since the June meeting has been very limited and has likely not changed the ECB’s view. We have only received one tier-1 data print, June inflation, which rose as expected to 2.0% due to energy base effects while core inflation remained at 2.3%, the latter due to a continued high momentum in services inflation. Industrial production in May rose more than expected like the German ZEW in July. Hence, data has been marginally hawkish. Market inflation expectations have also risen slightly, while financial conditions on the other hand have tightened due to rising long-term yields and the strengthening of the euro. We expect Lagarde to receive questions about the strengthening euro but downplay what it means for the ECB, although the dove camp seems more concerned about the impact on exports. By September two additional inflation prints and one PMI, the Q2 compensation per employee data and new staff projections, should make Lagarde leave the September decision open. Hence, ECB is most likely satisfied with the current market pricing, and we expect Lagarde to aim for a limited market reaction.