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July 2016

RBA may cut rates in August

Published: Tuesday 19 July 2016

  • RBA may cut rates in August
  • Shares hitting new highs in NY
  • UK inflation forecast to be  higher

Monday was a quiet one as far as financial markets and data were concerned. The tone of the markets was mildly positive but, in a data-vacuum few traders were keen to get heavily involved. That didn't stop the US share markets from hitting fresh all-time highs and the London market from making an 11 month high as the bid for ARM by Japanese company SoftBank got tongues wagging.
The minutes from the last Reserve Bank of Australia meeting were published last night. They reveal a leaning towards further interest rate cuts; perhaps as soon as August and that weakened the Australian Dollar to some extent. Interestingly, their concerns were almost entirely domestic in nature. They didn't see the UK's exit from the EU as being too much of an influence.
Today's big news includes UK producer and consumer price indices as well as construction data from the Eurozone and a German business sentiment index from the ZEW institute.
Sterling is holding up well after a turbulent three weeks but traders are nervous in spite of Foreign Secretary Boris Johnson's assertion that his initial talks with EU counterparts were very positive. Early day Boris, early days.
I think there is little doubt that UK inflation will remain subdued, so Sterling is unlikely to react unless the inflation rate is up to 0.6% or above. The previous figure on the CPI scale was 0.3% and the markets are forecasting 0.4-0.5% this time. Tomorrow's unemployment data will most likely be more influential.
Equally, I suspect there is little doubt that the Brexit vote will have knocked German business sentiment. The previous index reading was 19.2; the best in quite a while. It is forecast to have fallen to 10.0 or perhaps lower.  That would undoubtedly weaken the Euro.
And the bizarre success of the enhanced-reality-treasure-hunt-geo-caching-thing Pokemon Go is all over the press. On chap has taken it all very seriously indeed. Tom Currie has jacked in his job to become a Pokemon Go trainer. He claims to have caught 90 of the potential 151 virtual reality monster things and he says it with pride. I hope his career takes off but I can't help feeling it may be short lived. I am sure the clacker trainers of the 1970s, the Rubik's cube trainers of the 80s and the 90s Tamagotchi babysitters are all still going strong....aren't they.
Q)           How do you get Pikachu and Pidgeot onto a bus?
A)           You poke 'em on.

FX Research by David Johnson

Daily Currency Analysis with Michael Condron

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