- Fed Chair Powell delivered a dovish testimony to Congress, cementing rate cut expectations beginning 31 July. The Chair said that while their baseline for solid growth is still intact, uncertainties including trade, the US debt ceiling and Brexit have increased. Powell also said that low inflation might prove more persistent, a change of tack from several months ago when he said low inflation was likely transitory. Chair Powell did not commit to a specific timeframe, but a 25bp rate cut at the next FOMC meeting on 31 July is all but certain barring exceptionally strong data in the next several weeks.
- Brent crude oil rose 4.1% to $66.60 – a six-week high – on lower inventories plus risks of a hurricane reaching the Gulf of Mexico.
- The S&P500 rose 0.4% to a record high.
- The US dollar index is down 0.4% on the day. EUR rose from 1.1210 to 1.1262.
- USD/JPY fell from 108.95 to 108.35.
- AUD jumped from 0.6911 to 0.6969.
- NZD similarly jumped from 0.6595 to 0.6657.
- AUD/NZD extended the recent decline to 1.0460 following Powell’s testimony.
- Renewed concerns over Fed’s easing saw the greenback declining against majority counterparts including AUD/USD.
- The US and China continue to have their own trade-related differences, farm imports, arms sales to Taiwan became the first ones grabbing the spotlight.
- Speech from RBA’s Debelle and Aussie Home Loans data will be followed for fresh impulse.
Like all other major currency pairs, the AUD/USD also surged on the back of Fed Chair Powell’s testimony and FOMC minutes ignoring previous downbeat sentiment mainly due to the US-China trade negotiations.
With the Federal Reserve Chairman’s first-day of Testimony showing his downside bias towards the inflation, not to forget a signal that “most” at the FOMC expect higher rate cuts, the US Dollar (USD) plummeted across the board. Adding to the weakness was the Federal Open Market Committee (FOMC) meeting minutes that reiterated policymakers’ support for monetary easing.
Following that, markets turned against the greenback and the Aussie wasn’t an exception. Even the uncertainty surrounding the US-China trade deal couldn’t hold the buyers. Diplomats of the world’s two largest economies are talking the much-awaited trade deal but witnessing blocks at the start. Chinese dailies spread the news that there was no discussion on importing higher farm products from the US during G20 while the US arms sales to Vietnam was also criticized.
Moving on, the speech from the RBA’s Debelle will be followed for signs related to how many more rate cuts are expected from the Reserve Bank of Australia (RBA) considering recent global pessimism.
At the data front, Consumer Inflation Expectations (July), May month Investment Lending For Homes and Home Loans data will be on the spotlight. Any further deterioration into the consumer inflation from 3.3% earlier, coupled with additional weakness in investment from -2.2% prior, will confront expected recovery in Home Loans to -0.6% from -1.2%. Additionally, China’s New Loans for July are also up for release and might rise to 1,700 billion from 1,180 billion previous readouts.
US inflation and second-day of the Fed Chair Jerome Powell’s testimony will be the key to watch following aforementioned details.
With the 50-day exponential moving average (EMA) continues to restrict the pair’s near-term upside at 0.6975, chances of its decline to 0.6910 and then towards 0.6880 can’t be denied. However, a successful break of 0.6975 can quickly propel prices to 0.7015 and current month high near 0.7050.
Event Risk Data Today
- NZ: RBNZ Governor Orr speaks at 9am about the Government’s review of the Reserve Bank Act.
- Australia: May housing finance is anticipated to show the number of owner occupier loans decrease 1.0% (fcs -1.5%). RBA Deputy Governor Debelle speaks via videolink to the FX Week USA conference (11:10 pm AEST).
- Europe: Jun ECB minutes are released. Note the meeting took place prior to Draghi strengthening the easing bias to in “the absence of improvement… additional stimulus will be required” at the Sintra conference.
- US: Jun CPI is expected to show headline inflation move down to 1.6%yr from 1.8%yr while the core measure holds at 2.0%yr. Fed Chair Powell delivers his follow-up semi-annual testimony to the Senate. Other Fedspeak includes Williams in Albany, Bostic in Atlanta, Barkin in Idaho, Quarles in D.C and Kashkari in South Dakota.