Australian base rate on hold but Reserve Bank of Australia is troubled [Video]

Today's Highlights

• Australian base rate on hold but Reserve Bank of Australia is troubled

• USD weaker ahead of big data day

• Sterling mixed ahead of Purchasing Managers' Index release

 

Current Market Overview

The Reserve Bank of Australia (RBA) left the Australian base rate on hold at 1.5% when they met last night (UK time). The RBA pointed to gradual growth, a target of 3.0% GDP growth, and talked about the strong Australian Dollar subduing price pressures. It certainly keeps inflation down, as import costs are reduced, but it is playing merry havoc with exporters, who are crying out for a weaker currency. The Sterling – Australian Dollar rate remains below A$1.65.
 
The US Dollar, by way of contrast, is at its lowest level in 14 months, as measured by its trade weighted index. That has allowed the Pound to push up to $1.32 and the Euro to top $1.18. President Trump saw his Communications Director sacked after just 10 days in the job. His preferred form of communication appeared to be foul mouthed and vicious, so that’s probably for the best. The President’s tweet of “No WH chaos!” seemed more like he was trying to convince himself. He also tweeted about record highs in share markets, but the Federal Reserve’s injection of $4.35 trillion into the financial markets has a lot to do with that. Today brings US personal income and expenditure data; a favourite of the Federal Reserve, as well as manufacturing indices. All could swing the USD to and fro – and the forecasts are generally a tad on the pessimistic side, so a weaker USD is the more likely outcome.
 
Sterling is really only stronger against the US Dollar, but that has repercussions with the Pound making small gains elsewhere as well. All eyes are on the UK Manufacturing Purchasing Managers Index this morning. An index reading of anything above 54.5 would boost the Pound.
 
From the Eurozone comes a tumult of data covering all sorts of sectors. Most important will be the preliminary Gross Domestic Product (GDP) growth figure for Quarter 2. The forecasters are looking for a 0.6% quarterly growth rate and that would be in line with Q1. Any variation will have an impact.
 
Overnight tonight we get the New Zealand unemployment rate, which could offer up an improvement. That would strengthen the already strong NZ Dollar and bring more strife to New Zealand exporters. The very strong Kiwi Dollar is proving a headache for the Reserve Bank of New Zealand (RBNZ) because it hamstrings them at a time when they would probably like to push their base rate up a tad to calm certain sectors of the NZ economy. No can do when such a move would further strengthen the NZD.
 
And a day after the commemoration of the battle of Passchendaele in 1917, it is poignant to note that 1st August 1944 was the date of the last entry in Anne Frank’s diary. She died three days later.  It was the same day that saw the start of the Warsaw uprising in Poland.