EUR: EUR/USD - Consolidates Around 1.1650 Ahead Of Warsh Speech

Q2 trimmed mean CPI inflation printed at 3.6%, below the RBA’s May forecast of 3.8%. This is likely to mean that the Board decides to leave rates unchanged at its 11 August decision, assuming its updated outlook continues to show inflation at the 2.5%-band mid-point by end 2027 with what looks like a lower market cash rate path than in the May staff projections. Westpac has changed its forecast for August and now expects a hawkish hold from the RBA with another 25bp hike still part of the discussion though.

• Westpac notes that the pass through of higher costs to customers has been less in recent months than it and the RBA had feared when the US-Iran conflict began.
• Its chief economist Ellis said “our read of the communication and RBA forecasts was that below-expectation inflation was needed to rule out the hike, which is what we got.” She currently expects easing not to begin until August 2027.
• There is a risk of a November hike depending on Q3 CPI data on 28 October but that is not Westpac’s base case. However, it expects the RBA to continue sounding hawkish and retain a tightening bias as inflation remains “too high” and demand growth needs to slow further. 

BOJ-dated OIS pricing has firmed since the June MPM, particularly for meetings beyond July. 

• OIS pricing implies the market is almost fully priced for the BoJ to leave the policy rate unchanged at this week's meeting.
• This aligns with the consensus among major banks, all of which expect the BoJ to keep the policy rate at 1.0% on 30–31 July following June's 25bp rate hike.
• Most institutions continue to forecast the next 25bp increase in October, although several acknowledge that persistent yen weakness and mounting inflation risks could bring forward tightening to September.
• By contrast, the OIS market remains more cautious, assigning only a 95% probability of a cumulative 25bp hike by December, albeit up from 76% ahead of the June MPM.

Figure 1: BOJ-Dated OIS – Current Vs. Pre-June MPM

Source: Bloomberg Finance LP / MNI 

Below is a selection of key recent onshore media highlights for China ICYMI :

Economy (Xinhua): China releases document on so-called excess capacity issue.

AI Exports (Xinhua): Innovation, industrial strength drive surge in China's AI product exports

ODI  (Xinhua): China reports 3.8 pct rise in ODI in H1

Freight (China Daily): China-Europe freight trains top 130,000 trips, $520b in cargo over decade.

Economy (China Sec Journal): China's Economy Has a Solid Foundation for Stability and Momentum for Progress

Economy (China Daily): Tax data: Economic performance solid

Bonds (Shanghai Sec News): 30-year Treasury bond futures hit a nearly 8-month high.

Dividend News (Shanghai Sec News): Listed securities firms begin preparing for interim dividend payouts, sending a positive signal about shareholder returns.

Bonds (SCMP): China to waive panda bond fees through 2028 to bolster global yuan debt market.

MNI China Press Digest Jul 29:Fiscal Support, Housing Loan, EV