Aussie falters as CPI misses estimate

But inflation climbs into RBA’s target range

Despite headline CPI coming in below economists’ forecasts, it crawled into the RBA’s 2-3% target range for the first time in over a year. Headline CPI rose 2.1% y/y in Q2, up from 1.9% in Q1 but just below estimates of a 2.2% increase. Trimmed mean CPI, the RBA’s preferred measure, rose 1.9% y/y, matching analysts’ estimates, just shy of the lower target band threshold. The last time annual trimmed mean CPI was within the target range was in Q4 2015. Looks like the RBA still has a lot to do to spur inflation and, as you might expect, market pricing is implying that the cash rate will remain unchanged for a considerable period of time, with a less than 50% chance of a hike in the next 12 months.

The reaction in currency markets was a tad volatile. Initially AUD/USD surged to a two-week high of 0.7449 before reversing direction to 0.7398. The pair is currently trading at 0.7399.

AUD/USD 30-Min Chart

Source: Oanda fxTrade

China stimulus chatter fails to rally risk appetite

There is growing speculation that China might be getting ready to introduce a new set of stimulus measures. This comes as Chinese officials keep repeating that they have adequate tools to counter any developments in the economy. China’s Ministry of Industry and Information Technology said yesterday it would appropriately help handle China/US trade dispute and boost steady growth of industrial economy.

China stocks have risen almost 7% in the last three days on this speculation and are taking a slight breather today, easing back 1.3%. The yuan is still trading on the weak side, down 0.06% versus the US dollar, after touching a near-15 month low yesterday. The yuan has fallen as much as 9.3% versus the US dollar since March. No doubt this will irk US President Donald Trump, though China did counter his recent accusations yesterday with the Foreign Ministry saying China has no desire to boost its exports through competitive devaluation, adding that sound economic fundamentals are providing support to the currency.

U.S dollar boosted by higher Treasury yields

German sentiment to remain weak

German sentiment indicators feature heavily in today’s European data deck. The IFO surveys for July are expected to remain at low levels with the expectations index seen sliding to 98.1 from 98.6 in the prior month. That would be the lowest reading since December 2012. The rest of the calendar sees UK mortgage approvals, CBI trades survey and US new home sales for June.

You can see the full MarketPulse data calendar here: https://www.marketpulse.com/economic-events/

Source: MarketPulse

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Andrew Robinson

Andrew Robinson

Senior Market Analyst at MarketPulse
A seasoned professional with more than 30 years’ experience in foreign exchange, interest rates and commodities, Andrew Robinson is a senior market analyst with OANDA, responsible for providing timely and relevant market commentary and live market analysis throughout the Asia-Pacific region. Having previously worked in Europe, since moving to Singapore he worked with several leading institutions including Bloomberg, Saxo Capital Markets and Informa Global Markets, proving FX strategies based on a combination of technical and fundamental analysis as well as market flow information. Andrew began his career as an FX dealer with NatWest and the Royal Bank of Scotland in the UK.