AUD: AUD/USD - Looks Toward 0.7200 Ahead Of JH, Outperforms In The Crosses

RBA Governor Bullock spoke at the Anika lunch on “Monetary Policy in an Era of Shocks” and reiterated that the Board will “act as required to achieve its mandate” which includes additional policy tightening. It is focused on preventing higher costs from “entrenching inflation”. Q2/June CPI data are released on Wednesday and will be a key input in the updated RBA outlook and 11 August decision. Bullock said that the economy has developed “broadly as expected” but that data could change this assessment. 

• She emphasised that weak productivity growth means the rate the economy can grow before impacting inflation is low, which will limit real wage increases. This ongoing problem was mentioned a number of times.
• The RBA hasn’t achieved a sustainable return of inflation to target but underlying inflation is “broadly as expected” but capacity pressures are ongoing and some demand growth easing is still needed. The path to this goal may be derailed by the continued rise in non-labour costs which more firms are looking to pass onto customers, according to its business liaison programme.
• Businesses also report pausing hiring following the onset of the Iran War but it has resumed recently and vacancies remain robust even though Q2 employment/unemployment were softer than expected.

• China bonds will remain in tight ranges into month end, waiting for output from the Party meeting.  
• China’s mid-year Politburo meeting is expected to take place during the final days of July 2026, though the exact start date and timing are never announced by the government in advance.By long-standing political convention, the 24-member Political Bureau of the Communist Party of China Central Committee gathers during the last week of July to assess economic data from the first half of the year and dictate macroeconomic policy changes for the second half. Historically, this meeting usually occurs between July 24 and July 31.
• Markets will be watching closely for clues on targeted fiscal support and its impact on future issuance plans.  Issuance for the remaining of the week is bills only
• The 10-Yr has traded in a range of 1.71 - 1.735% in July with some domestic chatter suggesting that authorities would not want to see the 10-Yr below 1.70% as that could suggest deflation is back.  
• Looking ahead, what is likely is a targeted rise in issuance to support infrastructure spend and a modest rise in yields over Q3 - with the 10-Yr back towards 1.75%

The EUR/USD range overnight was 1.1367-1.1418, Asia is currently trading around 1.1378. The ugly overnight price action for risk has followed through into Asia with Equities under immense pressure(KOSPI, -10.5%). Currencies for the moment though are not really reacting, lagging this risk-off move. Perhaps still hanging their hat on Trump's intimation they could return to negotiations in the Middle-East or maybe the market is just not that keen to add to their risk with the FOMC this close. I remain skewed in favour of fading rallies with the first resistance holding toward 1.1400-1.1430 and then back toward the 1.1500-1.1550 area looking for the trend lower to reassert itself at some point. I suspect this 1.1350-1.1500 range could continue to persist until we get a clear signal on the direction of this war and into the FOMC this week which will be important for the USD.           

• (Bloomberg) - “The Fed should keep rates on hold on Wednesday, but Chair Kevin Warsh’s opposition to forward guidance may encourage markets to hold dollars as protection against hawkish surprises,” wrote ING analysts.”
• MNI BRIEF:Iran Impact Oil More Than '22, Price Impact Less-ECB. The Iran conflict has generated a supply shock roughly fourteen times larger than Russia's invasion of Ukraine yet produced a broadly comparable and historically subdued oil price response, an ECB Blog post published on Monday said, noting that the renewed resumption of U.S.-Iran strikes in July poses fresh upside risks to prices that the existing buffers may struggle to absorb indefinitely.
• Options : Closest significant option expiries for NY cut, based on DTCC data: 1.1425(EU716m), 1.1450(EU421m). Upcoming Close Strikes :  1.1450(EU1.95b July 31), 1.1500(EU2.91b July 31). - BBG
• The EUR/USD Average True Range for the last 10 Trading days: 41 Points

Fig 1 : EUR/USD Spot Daily Chart

Source: MNI - Market News/Bloomberg Finance L.P