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The Australian dollar weakened after the minutes of the July meeting of Reserve Bank of Australia, which indicated the possibility of lowering interest rates next month. The minutes of the RBA said that the central bank will examine data on inflation, housing market and employment for the month to determine whether to change its policy. This information will enable the Council to clarify its assessment of the prospects for growth and inflation, and to make any reasonable adjustments to the policies.
Recall, at the June meeting RBA left interest rates unchanged at 1.75%.
With regard to the Australian dollar Reserve Bank of Australia noted that the growth of the Australian dollar will complicate the restoration of economic balance in the country. Inflation is expected to remain at a low level for some time, given the wages and cost pressure. Indicators of inflation expectations have remained below average. Many factors point to the growth in retail sales in June, but the decline in prices continues. Also, the RBA noted that recent labor market data was uncertain, although the leading indicators still point to growth in jobs. RBA believes that the uncertainty caused by the possible withdrawal of Britain from the EU, will have only a negligible effect on global economic growth
Citi expects core inflation in Australia in the second quarter to be 0.3%, and this will be enough to convince the Reserve Bank of Australia to cut rate by 25 basis points at the August meeting.
If inflation goes above this level, the lowering of the rates in August will be less likely, especially given the recent data that pointed to improvement in business sentiment and an increase in the number of jobs.
The ANZ also believe that the RBA will lower the key interest rate in August. "Core inflation in the second quarter is likely to remain low and the labor market has lost momentum in the current year, which could lead to a decrease in the key rate".
The pound fell slightly in anticipation of the report on UK inflation. The main topic on the UK inflation report will be the consumer price index, which is expected to rise slightly in June to 0.4% from 0.3%.
It is expected that German ZEW economic sentiment index to fall 9 in July, less than half from the previous rate of 19.2.
Euro rose moderately against the dollar as investors are cautious ahead of the main event of the week - the meeting of the European Central Bank. Many economists believe that the ECB will refrain from further easing of monetary policy, despite the strengthening of the risks to the economic situation after Brexit, and will continue to focus on the implementation of the previously announced measures. However, the policy may indicate the possibility of QE program changes, which may include the extension of the terms of this program, and / or enlargement of the list of assets that are available for purchase. According to the result of the latest Reuters poll, 18 of 19 economists predict that during the July meeting of the ECB will not change the parameters of monetary policy.
EUR / USD: during the Asian session, the pair was trading in the $ 1.1060-70 range
GBP / USD: during the Asian session, the pair was trading in the $ 1.3205-20 range
USD / JPY: during the Asian session, the pair was trading in Y105.65-85 range
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