The latest meeting minutes from the Reserve Bank of Australia (RBA) strongly suggested that Wednesday’s inflation data would decide whether or not a further interest rate cut is necessary. The RBA continues to battle with stubbornly low inflation and with Wednesday’s second-quarter figures expected to show a weakening in inflationary pressures on the year, it is highly likely a rate cut is on the cards at the next policy meeting. Expectations of this kept the ‘Aussie’ weak yesterday.
There was no domestic data to provide support and commodities were largely on the decline, creating further downside risks for the Australian Dollar. Despite this, weakness in the Pound allowed the ‘Aussie’ to claw back losses and advance during yesterday’s European session.
Monday’s only data painted a dire picture of business sentiment in the wake of the UK’s Brexit referendum decision. While the Confederation of British Industry’s (CBI) Trends Total Orders and Trends Selling Prices indices performed well, the same cannot be said of the Business Optimism measure. Expected to weaken from -5 to -15, the index instead went into freefall, clocking in at -47.
Speaking of the result, CBI Chief Economist Rain Newton-Smith, unsurprisingly blamed the Brexit referendum, commenting;
‘It’s clear that a cloud of uncertainty is hovering over industry, post-Brexit. We see this in weak expectations for new orders, a sharp fall in optimism and a scaling back of investment plans. So, it’s important now for the new Government to steady the ship with a plan, and a clear timetable, for negotiating the UK’s relationship with the EU. This, along with a renewed focus on industrial strategy, will help give firms the confidence they need to grow and create jobs.’
The reading of -47 is the lowest business optimism has been in six years, when the country was still in the grips of the financial crisis. While usually a low-impact release, the fact that the drop in sentiment was so severe undermined the Pound’s strength and ate into previous gains.
Today is a thin data day for both Australia and the UK. Only the ANZ Roy Morgan Weekly Consumer Confidence Index is set for release from Australia. Unless there is a particularly notable increase or decline in sentiment, the Australian Dollar could find itself reacting mostly to developments on the commodity markets.
The UK data consists of the BBA Loans for House Purchase figure, which is predicted to show a drop in the number of property loans issued in June compared to May.
The Australian Dollar Pound (AUD GBP) exchange rate was trading in the region of 0.5686, while the Pound Australian Dollar (GBP AUD) exchange rate trended around 1.7580.
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