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Australian interest rate policy unchanged - again

Published: Tuesday 05 June 2018

  • Bank of England comments weaken the Pound, despite positive UK data
  • US likely to raise interest rates next week
​​By Michael Hart

The Australian Dollar is paring back some of this week’s gains after the Reserve Bank of Australia (RBA) left cash rates unchanged at 1.50% as widely expected. The accompanying statement is largely unchanged from their prior statement, as they reiterated that the pick-up in wage growth and inflation will be gradual. The RBA remains firmly neutral, with no plans to raise rates this year.
Bank of England comments weaken the Pound, despite positive UK data
Sterling saw some weakness amid comments from Bank of England Monetary Policy Committee (MPC) member Silvana Tenreyro yesterday, whose message echoed that of the Bank of England’s own inflation report. MPC Member Tenreyro also highlighted the downside risks to the economy, as although the weakness seen during the first quarter would likely be temporary, it does increase the possibility of some underlying weakness in demand. Silvana has also opted to wait a little while more to view the data before making any decisions on interest rates.
The UK Services Purchasing Managers' Index (PMI) this morning beat expectations with a reading of 54. This now confirms all three PMIs this month have surprised to the upside, potentially putting the bad start to the year to rest. Although the GBP has not rallied this morning, these figures should have confirmed the bottom for the time being.
The UK Prime Minister, Theresa May, has told US President Trump that new U.S steel and aluminium tariffs are "unjustified and deeply disappointing". May was speaking in a 30-minute phone call with Mr Trump that UK officials described as "constructive", as Mrs May underlined the need to safeguard jobs. They’ve agreed to discuss it further at the G7.
US likely to raise interest rates next week
Looking ahead, the lack of major US economic reports means the focus will be on trade and the lead-up to the 13th June monetary policy meeting. Strong jobs growth and hawkish comments from US policymakers reinforce the widely held view that the Federal Reserve will raise interest rates next week. Investors will likely hold on to their US Dollars positions into the Federal Open Market Committee (FOMC) meeting as the market is pricing in a 100% chance of tightening.

Why did the cookie go to the doctors?
Because he felt crummy.

What did the first plate say to the second plate?
Dinner's on me.

What do you call an unpredictable camera?
A loose Canon.

Today's Major Economic Releases

Market BST Data/Event Previous Expected
EUR 09:00 EU: Final Services Purchasing Managers' Index 53.9 53.9
GBP 09:30 UK: Services Purchasing Managers' Index 52.8 52.9
EUR 10:00 EU: Retail Sales 0.1% 0.5%
CAD 13:30 Canada: Labor Productivity 0.2% 0.3%
USD 15:00 US: ISM Non-Manufacturing Purchasing Managers' Index 56.8 57.9
USD 15:00 US: JOLTS Job Openings 6.55m 6.49m

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