The Reserve Bank of Australia (RBA) is in the spotlight as it gears up for its upcoming meeting on Tuesday. Analysts are divided on whether there will be a 25 basis points (bps) rate hike, or if the RBA will maintain the current rate of 4.10%.

Last Week’s Highlights

  • China growth concerns, lack of stimulus put pressure on the Yuan.
  • Sintra Forum didn’t deliver the guidance markets were anticipating.
  • Positive US data saw US10Y continue to move higher along with USD.

Economic Outlook: Key Data Releases and Trading Opportunities

Looking ahead to next week’s economic calendar, retail FX traders should pay close attention to five significant US data releases that have the potential to significantly impact the USD and yields.

These data points could provide trading opportunities, particularly for pairs such as GBPUSD and EURUSD. Strong US data could prompt short trades, while poor data might create long opportunities in XAUUSD.

US ISM Manufacturing PMI:

On Monday, the ISM Manufacturing PMI for June is expected to show a slight increase to 47.2 from May’s 46.9.

However, the S&P Global PMI series suggests a contraction in production. If the data turns out worse than expected, this contraction, combined with falling customer confidence and manufacturers’ concerns over inflation and reduced sales, could potentially pressure the USD.

ISM Services PMI:

Due on Thursday, the ISM Services PMI is anticipated to experience a marginal rise to 50.5 for June. Unlike the manufacturing sector, the services sector appears more optimistic, with ongoing robust growth despite a slightly slower expansion pace.

US Jobs Report:

Friday brings the highly anticipated US Jobs Report. Leading up to this, the JOLTS data for May and weekly jobless claims will set the tone for the labour market sentiment.

Although the JOLTS series is somewhat outdated, any surprises, similar to last month’s, could have hawkish implications. The weekly initial jobless claims are closely watched as a leading labour market indicator.

NFP:

The Non-Farm Payrolls (NFP) report is expected to show the addition of 200,000 payrolls, an unchanged unemployment rate of 3.7%, and a 0.3% month-on-month rise in average hourly earnings.

While there are some signs of labour market cooling, it is unlikely to deter the Federal Open Market Committee (FOMC) from a planned rate hike in July.

However, the NFP results could lead to upside reactions in the USD and US yields if they meet or exceed expectations or disappoint investors. 

Market Implications:

Currently, markets are pricing in a terminal rate of 5.42% for the Federal Reserve. Therefore, very strong data this week could lead to markets pricing in a rate hike as early as September.

On the other hand, if the data is very weak, markets might discount any possibility of a hold after July.

Tip from our analyst: Stay informed and make well-informed trading decisions as these key data releases approach. The upcoming week holds potential trading opportunities and could have a significant impact on the USD and US yields. Keep an eye on the economic indicators and be prepared for potential market reactions

Reserve Bank of Australia (RBA) Decision: Rate Hike or Hold?

The Reserve Bank of Australia (RBA) is in the spotlight as it gears up for its upcoming meeting on Tuesday. Analysts are divided on whether there will be a 25 basis points (bps) rate hike, or if the RBA will maintain the current rate of 4.10%.

Money markets indicate a stronger likelihood of no change, with only a 37% chance priced in for a rate increase.

In the previous two meetings, the RBA surprised consensus by opting for 25 bps rate hikes, citing elevated inflationary pressures as the reason behind their actions.

The RBA has maintained a hawkish stance, expressing determination to bring inflation back to its target range, suggesting that further tightening might be necessary.

Following these moves, market expectations for future rates were adjusted upward.

However, the hawkish sentiment waned when the meeting minutes revealed an internal debate between raising rates or maintaining the status quo. Additionally, last week’s monthly inflation rate came in lower than expected at 5.60%.

While the latest inflation data and money market predictions point towards a pause in rate hikes, traders should keep in mind the RBA’s recent contrarian approach.

The persistently high inflation, still far from the target range, could potentially lead to another surprise rate hike by the RBA, making this decision a significant market mover.

Stay tuned for the RBA’s decision, as it has the potential to impact currency markets and trading strategies.

This material is for general information purposes only and is not intended as (and should not be considered to be) financial, investment or other advice on which reliance should be placed. INFINOX is not authorised to provide investment advice. No opinion given in the material constitutes a recommendation by INFINOX or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

All trading carries risk.