The Australian Dollar has strengthened overnight against a number of currencies after Reserve Bank Governor Michele Bullock stated that central bank wouldn’t hesitate to hike interest rates again if inflation again becomes a problem. Earlier this week the central bank had decided to keep rates unchanged, but did provide a hawkish outlook with inflation proving sticky.
Inflation is currently at 3.8% due to the gap between supply and demand being larger than previously thought and therefore contributing to inflation being persistent. Bullock also stressed that market expectations of a rate cut this year weren’t aligned with the central banks view. Financial markets currently present a 50-50 chance of a rate reduction in their next meeting at the end of September despite Bullocks comments. No doubt the inflation figures later this month will play a big part in whether markets still price a cut at 50-50 or whether Michele Bullock completely rules one out.
Sticking with central banks, The Bank of Canada released their most recent meeting minutes last night with the main concerns surrounding household spending in 2025 and 2026 due to many households due to renew mortgages at higher rates. Consumer spending is due to improve, but again it is limited again due to household debt still weighing heavy. The main takeaway is that the Bank of Canada has shifted to easing mode with two 25 basis point cuts but remain cautious for signs of persistent inflation or of course weaker than expected consumption figures. Both of those releases will determine whether the Bank of Canada move forward with a 50 basis point cut in September or not.
Moving on to today, of most importance will be the weekly release of jobless data in The U.S which currently suggests continuing jobless claims and initial jobless claims will have dropped. I would err on the side of caution with this seeing as the jobs market in The U.S has proved underwhelming for the past few months. Any deviation away from ‘market expectations’ could provide further weakness for the US Dollar.
