Written by Steven Dooley, Head of Market Insights, and Shier Lee Lim, Lead FX and Macro Strategist
Greenback on tenterhooks ahead of inflation
The greenback was mostly weaker overnight as markets waited for the key US inflation number due at 10.30pm AEST.
US headline inflation is forecast to fall from 3.3% in May to 3.1% in June, however any higher number might upset hopes for US rate cuts and push the US dollar higher.
With the US dollar lower, the British pound was the best performer, with the GBP/USD up 0.5% after commentary from Bank of England chief economist Huw Pill indicated that inflation was still a concern in the UK.
The AUD/USD was flat while USD/JPY gained 0.2%.
The NZD/USD tumbled 0.7% after the Reserve Bank of New Zealand appeared to remain open to rate cuts earlier rather than later.
Won weakens with BOK seen to hold rates
We anticipate that the Bank of Korea (BOK) will unanimously decide to maintain the current policy rate of 3.50%. We do anticipate some dovish changes to the policy statement, though, since the BOK seems more assured of reaching price stability.
This probably will include eliminating the word “sufficient” from the sentence “will maintain a restrictive monetary policy stance for a sufficient period of time” and providing a more balanced assessment of the risk associated with the inflation forecast. These changes would likely counteract some of the more hawkish elements, such a more optimistic growth projection.
Given the high level of uncertainty surrounding Fed rate reduction, KRW devaluation, and Q2 GDP, we believe the majority of MPC members do not believe that early rate cuts are warranted. As a result, we do not anticipate any more signals, such as dissenting votes or more votes in favor of a lower dot plot, at this meeting.
Retailers’ continuous foreign investments and NPS’s continuous USD purchases are keeping pressure on Won to decline.
Ringgit resilient with BNM likely maintain policy
We anticipate that Malaysian central bank – Bank Negara – will stick with its current policy rate of 3% and that the policy statement will continue to be in line with the previous MPC meetings this year.
Despite the ongoing global rate-cutting cycle, we believe that policy easing will be viewed by BNM as unnecessary as the GDP outlook is strengthening and export growth is turning around more firmly.
Following the government’s June increase in diesel prices, inflation is likewise expected to continue rising, but in line with BNM’s outlook—which, it seems to us, already factored in some rationalization of subsidies in its 2.0–3.5% full-year 2024 CPI inflation prediction. The reason for MYR’s better relative performance is BNM’s ongoing efforts to convert the export earnings of businesses associated with the government.
Aussie at highs; NZD at lows
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 8 – 13 July
All times AEST
*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
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