• richard evans

RBA to raise rates again, but will it support AUD

Good morning

Well I should start with a massive congratulations to the England ladies football team who brought home the Euro 2022 trophy after beating Germany in extra time yesterday. A fantastic achievement.

Currencies Friday were a little volatile with GBPUSD trading up to 1.2245 before trading down to 1.2065, only to then recover to high 1.21s in late afternoon, and this is where it spent most of its time overnight. EURUSD followed a similar pattern, moving down from 1.0250 to 1.0150 before recovering almost all those losses, now 1.0235. Gold has been pretty stable overnight, trading between 1760 and 1766, USDJPY saw larger than normal volumes overnight as it traded lower from 133.55 to 132.05. US dollar seems to be ignoring Kashkaris comments that Fed will do all it can to being down inflation and that the markets interpretation that Fed may back away from rate rises is surprising. A 50bps rise in September is firmly on the table

Pelosi has started her trip of Asia, but the itinerary does not name Taiwan, so far only Singapore, Malaysia, South Korea and Japan are on the agenda. China have warned of serious consequences if Pelosi visits Taiwan, including talk of military action. A visit is not yet ruled out but I’m not sure US will risk it. Imagine if Pelosi does go there, and China military action follows soon after. US will be held responsible, certainly by China, just in the way Ukraine and the West have been blamed by Russia for its invasion of Ukraine. I still feel it’s only a matter of time before we see action from China but no point in kickstarting it.

BoE rate announcement due later in the week, a rise Is on the cards but it is unclear whether this will be 25bps or 50bps. I’m thinking 25bps, and it is possible that with it we will see growth forecasts revised lower. Perhaps GBP will struggle to hold recent gains, particularly against EUR, although GBPUDS seems more at the mercy of overall USD sentiment at the moment.

RBA are likely to raise rates 50bps once again in the early hours of tomorrow morning. The Aussie economy is still going well although there are signs of it slowing down, but inflation remains high and RBA will look to raise rates sooner rather than later. Whether this offers any additional support for AUD remains to be seen, if the market thinks RBA are reaching their peak we could see AUD slip a bit, I have already seen a downside AUDJPY suggestion although timing-wise that could have been better given it already fell from 95.65 to 92.65 in just the last few days. More to go say some, an eye on the May lows around 88.00 is being talked about although that is largely due to a possible stronger yen.

Lots of PMI numbers out today although these are the final readings so may have limited impact. US ISM this afternoon though is expected to come in a little weaker, remember Fed have made it clear the speed and size of future rate rises is data-dependent so this could have more impact than usual.

Meanwhile the weather looks as though it will stay comfortable this week, reaching 25-27 degrees which in my mind is pretty much perfect. I did read over the weekend that hot temperatures could be with us until end October. I know global warming is a bad thing but with energy prices as high as they are, the longer I can put off turning the heating on, the better.

This is my last full week before a much needed holiday, we haven’t been away as a family for some time now and with the kids growing up fast, indeed one of the ‘kids’ is now officially an adult, so we’d like to make sure we get some ‘family time’ in before t4hey work out there are better things on offer.

Finally, I have an apology to make. It’s the Love Island final this evening, I had promised I’d keep you all up to speed with events in the villa and predictions on the outcome. I have seen a few episodes but I’m sorry to say not enough to have had the deep insight I was hoping for. Presumably though you’ve all been keeping up to date with events yourselves…..

- 09.00 EU S&P global manufacturing PMI

- 09.30 UK S&P global manufacturing PMI

- 10.00 EU unemployment

- 14.45 US S&P global manufacturing PMI

- 15.00 US manufacturing ISM

- 02.30 AUS building permits

- 05.30 RBA rate announcement

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