RBA: Tightening Bias Retained As Persistent Inflation Risk Rises
In June the RBA discussed both a 25bp hike and a pause and while the decision was again “finely balanced”, the “stronger” arguments were for another rate rise. As mentioned in the meeting statement, upside inflation risks and not meeting the target by mid-2025 were the drivers of the June decision. May labour market data was very tight, the other key variables before the July 4 meeting are May CPI on June 28 and retail sales June 29 with Q2 services prices not until July 26.
- The meeting minutes were generally hawkish with the discussion of a hike described before the pause (unlike May), upside inflation risks firmly stated, little spare capacity, reduced risks to global growth and achieving target “drawn out”. While the concluding paragraph removed “further increases in interest rates may still be required”, it added the Board’s “willingness to do what is necessary to achieve” a return to target. The RBA will hike again if it believes it must to achieve its inflation forecast.
- Indexing of wages and prices to the CPI along with sticky services inflation seemed to drive the RBA’s assessment of increased risks to inflation, and thus expectations and rates. Wages can increase in line with inflation only if productivity picks up. Also, there were yet to be signs of easing services inflation and goods prices had moderated less than some other countries.
- Rising house prices were seen to temper the consumer slowdown “in the coming year” and stable home loan approvals indicated that financial conditions may not be as tight as previously thought.
- The arguments to pause tightening included downside risks to inflation from weaker consumption and global markets/shipping, time to assess impact of hikes to date given lags & refis, consumption has slowed significantly and market inflation expectations are little changed.
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USDCAD TECHS: Bullish Short-Term Theme
- RES 4: 1.3695 High Mar 28
- RES 3: 1.3668 High Apr 28 and key resistance
- RES 2: 1.3640 High May 3
- RES 1: 1.3568 High May 15
- PRICE: 1.3520 @ 16:33 BST May 19
- SUP 1: 1.3404 Low May 16
- SUP 2: 1.3363/15 Low May 11 / 8
- SUP 3: 1.3302 Low Apr 14 and a key near-term support
- SUP 4: 1.3275 Low Feb 14
USDCAD remains above Tuesday’s low. The recovery from the May 8 low eased recent bearish pressure and the pair has traded through the 50-day EMA, currently at 1.3513. A clear break of this average would strengthen the case for bulls and signal scope for a climb towards resistance at 1.3668, the Apr 28 high. Key support lies at 1.3302, the Apr 14 low. A break would reinstate the recent bearish theme.
US STOCKS: Stocks Off 3M Highs as Debt Ceiling Talks Hit Snag
Stocks see-sawing in modestly weaker territory after posting the best levels since early February in the first half as debt ceiling negotiations hit a snag in late morning trade.
- "GOP DEBT NEGOTIATORS SAY WHITE HOUSE NOT BEING REASONABLE .. and GOP NEGOTIATORS LEAVE DEBT TALKS" Bbg have triggered late morning unwinds with SPX E-Mini Futures down 11.25 points (-0.27%) at 4205; DJIA down 131.31 points (-0.39%) at 33457.23; Nasdaq down 44.1 points (-0.3%) at 12652.15.
- No substantive reaction to a policy panel event with Fed Chairman Powell, former chair Bernanke highlighting "key issues in monetary policy and the economy and facilitate discussions on the challenges faced by monetary policymakers.
- Echoing previous comments - tighter credit conditions "weigh on economic growth hiring and inflation. As a result, our policy rate may not need to rise as much as it would have otherwise to achieve our goals."
- At the moment: Emini futures have breached key resistance and the bull trigger at 4206.25, the May 1 high. Clearance of this level confirms an extension of the bull trend from Mar 13. This opens 4244.00, the Feb 2 high and the next key short-term resistance. Key support is at 4062.25, the May 4 low. A move through this level would highlight a bearish threat.
AUDUSD TECHS: Key Support Remains Exposed
- RES 4: 0.6921 High Feb 20
- RES 3: 0.6861 50.0% retracement of the Feb 2 - Mar 10 bear leg
- RES 2: 0.6824 High Feb 24
- RES 1: 0.6705/6818 50-day EMA / High May 10
- PRICE: 0.6664 @ 16:26 BST May 19
- SUP 1: 0.6605 Low May 18
- SUP 2: 0.6565 Low May 10 and the bear trigger
- SUP 3: 0.6547 61.8% of the Oct - Feb bull cycle
- SUP 4: 0.6403 76.4% of the Oct - Feb bull cycle
AUDUSD maintains a softer tone following the pullback from 0.6818, the May 10 high, and price is trading closer to this week’s lows. A bearish continuation would expose key support at 0.6565, the Mar 10 low. Clearance of this level would confirm a resumption of the bear cycle that started Feb 2 and highlight a range breakout. On the upside, a breach of 0.6818 is required to reinstate a bullish theme and this would expose 0.6861, a Fibonacci retracement.
