The Fed holds and leaves the door wide open to cut in September. The Bank of Japan hikes and says more tightening could be on the way. RBA rate hike bets are all but off, as Q2 CPI rises less than expected, sending the Aussie dollar tumbling. And oil jumps on new conflict in the Middle East.
In our bonus deep dive interview ANZ Senior Economist Catherine Birch explains what the Reserve Bank of Australia will be looking for to gain confidence it can cut rates from February.
5 things to know:
The Federal Open Market Committee has just held the Fed Funds Rate at 5.25-5.5% unanimously. ANZ Economist Bansi Madhavani says markets continue to fully price in a September rate cut, with about 65 basis points of cuts priced in through to the end of the year.
The Bank of Japan yesterday lifted its key policy rate by 15 basis points to 0.25%, as well as quantitative tightening plan to reduce purchases of Japanese Government bonds. Bansi says the BoJ maintained hawkish guidance on future moves.
Rate hike bets in Australia eased yesterday as annual Q2 CPI printed in line with the RBA’s 3.8% forecast, from 3.6% in Q1, and below the market consensus of 4%. Trimmed mean CPI was 3.9% - a tick above the RBA but down from 4% in Q1 and below the market expectation. ANZ Senior Economist Catherine Birch says the data saw any expectations for a rate hike by the RBA vanish, with markets pricing in a full 25 basis point cut in February.
In other market news, oil was up around 3% on escalating tensions in the Middle East. It has also been a big 24 hours in currency markets: The Aussie dollar initially fell about 0.7% against the US dollar in local trade following the CPI numbers. And Japan’s Finance Ministry confirmed 5.5 trillion yen - $36 billion US dollars - of Yen purchases over the past month. ANZ Head of FX Research Mahjabeen Zaman says the Yen could gain further.
Business Confidence surged in New Zealand during July, with the headline ANZ Business Outlook measure up 21 points, and firms’ own activity outlook up 4 points. ANZ New Zealand Chief Economist Sharon Zollner points out though that this was off a very low base.
Cheers
Bernard
PS: Catch you tomorrow with the Bank of England’s rate decision and further reaction to those FOMC and BoJ meetings.
