AUD/USD rebounded by 0.7% to 0.6656 after three days of selling, into the upper half of the 0.6575-0.6715 range set after the Reserve Bank of Australia meeting in early May. At its meeting yesterday, the RBA kept its cash rate target unchanged at 4.35% for the fifth meeting without ruling anything in or out. RBA Governor Michele Bullock confirmed that the board discussed whether to hike rates at the meeting. CPI inflation had risen a third month from 3.5% YoY in March to 3.6% in April, nearer the RBA’s 3.8% forecast for June in the May Statement of Monetary Policy. However, financial conditions were restrictive, especially on households, posing downside risks to the economy. Hence, the RBA decided to wait for the June quarter CPI data (out on July 31) to provide a comprehensive view on prices before the next RBA meeting on August 6. Interest rate futures see the RBA delaying rate cuts till 2025, in line with its projection for inflation to return into the 2-3% target band only by the end of 2025.
USD/CHF fell a fifth session by 0.6% to 0.8842, breaking below its two-week band (0.8880-0.8995) into the lower 0.8725-0.8895 range seen between mid-February and mid-March. We see the Swiss National Bank keeping its policy rate unchanged at 1.50% at its meeting on June 20. USD/CHF started falling from 0.9140 on May 30, on the day SNB President Thomas Jordan blamed the CHF’s weakness for the rebound in CPI inflation from 1% YoY in March to 1.4% in April amid a warning that R-star might be higher than the estimated 0%. Around the same time, the Swiss economy exceeded expectations, with growth improving to 0.5% QoQ sa in 1Q24, its highest since 2Q22, from 0.3% in 4Q23. Nonetheless, SNB may become alert to more CHF strength especially against the EUR and the GBP into the upcoming French and UK elections.
DXY Index depreciated 0.1% to 105.26 on Tuesday, paying more attention to US data than the comments of Fed officials. With the anxiety subsiding over the political uncertainties in France, investors brushed aside the better-than-expected industrial production and capacity utilisation data. Most attention fell on US advanced retail sales, which rose 0.1% MoM sa in April, significantly lower than the 0.3% expected. March was also revised to -0.2% from its previous estimate of 0%. Excluding autos, retail sales declined a second month in May, at the same pace of 0.1% MoM as in April. The US Treasury 10Y yield sank 5.8 bps to 4.22%, reversing Monday’s 6 bps rise to 4.28%. Dow and S&P 500 rose by 0.2% and 0.3%, respectively. Interest rate futures sees the Fed lowering rates twice this year in September and December, ignoring comments by Fed officials who favoured one or no cuts.
However, New York Fed President John Williams said the higher-than-expected nonfarm payrolls might be overstated and that inflation would keep coming down this year. Next week, US PCE deflators are expected to mirror the slower CPI inflation in May. Following the next nonfarm payrolls report on July 5, Fed Chair Jerome Powell’s semi-annual testimony on monetary policy to the US Senate Banking Committee on July 9 will probably set the tone as to whether the Fed will pave the ground at the FOMC meeting on July 31 for a rate cut at the September 18 meeting. For now, DXY will likely hold in a higher 105-106 range vs. the 104-105 range in the previous four weeks.
Quote of the day
“Mastering others is strength. Mastering yourself is true power.”
Lao Tzu
19 June in history
In 1865, Union General Gordon Granger declared slaves were free in Texas. The date commemorating the end of slavery is celebrated across the US as Juneteenth today.
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