RBA Minutes Show Bank Is Committed To Tightening

The release of the RBA meeting minutes overnight confirmed that the bank remains committed to continued tightening. The August minutes struck a hawkish tone, noting that “The board expects to take further steps in the process of normalizing monetary conditions over the months ahead.”

However, the minutes also added the caveat that policy is “not on a pre-set path.” These comments were seen as creating two-way risk in AUD; should inflation continue running hot the bank will continue pressing ahead with aggressive rate hikes. However, should inflation temper, the RBA has room to ease off on hikes.

Notably, the minutes said that “The behaviour of household spending continued to present a key source of uncertainty for the outlook”, adding that “Higher inflation and higher interest rates were putting pressure on household budgets.” AUD was seen weakening after the minutes in response to concerns over Aussie household spending.

Key Factors for Today

- RBA minutes show bank committed to further tightening, but data dependent, creating two-way risk
- Stock markets broadly higher despite ongoing USD strength
- USD rallying on better growth outlook, China stimulus
- US earnings in focus today with big name retailers due.

Coming Up

- CAD Canadian July CPI
- EUR Eurozone July trade balance
- USD US July industrial production

Risk Assets Continue Higher Despite USD Rally

Yesterday saw a choppy session for some indices though, overall, asset markets traded higher, despite a firmer US Dollar. Fresh stimulus in China was seen helping lift risk sentiment, despite chatter over a slowing economy there. Lower oil prices this week appear to be helping lift risk sentiment as traders anticipate a reduced squeeze on businesses and consumers alike, allowing for better spending elsewhere. US stocks continued higher yesterday while UK and European stocks were seen bouncing off the lows. The Nikkei is trading a little weaker today following yesterday’s rally.

Walmart & Home Depot Earnings Due Today

On the earnings front, the big names to watch today will be Home Depot and Walmart, both scheduled to release Q2 earnings. Walmart shares are trading higher ahead of the release, despite a further profit warning last month, on news of the company landing a road-mark streaming deal with Paramount which will be offered to customers as part of Walmart+ membership from September.

USD Rally Continues

In FX, the US Dollar has been the strongest performer over the European open on Tuesday. Despite last week’s softer inflation data and Friday’s weaker consumer sentiment reading.

Along with a softer Chinese renminbi, USD appears to be benefiting from the view that inflation might finally be moderating. Despite reduced forecasts for further fed rate hikes this year, the better implications for US growth are helping support USD.

Antipodean Currencies Weaken Further

The weaker performers today have been the antipodean currencies which appear to be softening on concerns over Chinese economic activity.

GBP has also been weaker again today as fears of a further spike inflation last month create a drag on the currency ahead of the July CPI release tomorrow. CAD traders will also be on the lookout today with the release of July CPI. EUR traders will be braced for today’s Eurozone trade balance data and ZEW economic sentiment data.