WEEK AHEAD: JULY 05

Short Description

This week the two big events to look out for are the RBA rate decision and the release of Fed minutes. I’ll look at these and a potential Aussie dollar setup, and then run through the top data points on this week’s economic calendar. Thanks! Rich

Video Script

AUD/USD Setup | RBA & Fed Minutes | WEEK AHEAD

Hi everyone, hope you are all well. This week the two big events to look out for are the RBA rate decision and the release of Fed minutes. A forex pair that will be impacted from both of these is the AUD/USD, which is currently pressing into its 2021 lows. So I’ll look at these events, the potential Aussie dollar setup, and then run through the top datapoints on this week’s economic calendar.

Now you may remember my video from 2 months ago for the week covering April 5^th to 9^th, where I asked the question is the AUD/USD uptrend over? Well the answer was a ‘Yes’ because the currency pair has gone sideways since that video was recorded. But now the new question is- is a new downtrend about to start?

The RBA meeting does come before the Fed minutes this week, but I’ll start with the FOMC minutes because they are probably more important. Now the US dollar just had its best month in nearly 5 years for basically one reason – the hawkish June Fed meeting. Now this Wednesday, we have the minutes from that meeting. As I’ve discussed before – the change was that the Fed brought forward its forecasts for when the first-rate hikes would come. 

Since then, various Fed officials have glossed over those forecasts, including Jerome Powell when testifying to Congress. From the minutes we hope to learn specifically what policymakers were thinking to prompt the more hawkish thinking. I think will be the big one will be their take on inflation. If the minutes show the Fed is more worried about inflation than implied in recent speeches, that should be bullish for the US dollar and put AUD/USD under pressure.

And guys can I just ask that if you’re enjoying the video, please make sure you give a quick tap of that like button!

Now from the Australian point of view, we have the RBA rate decision this week – and also the changing dynamic in Australia around the pandemic.

As a reminder Australian interest rates are at a record low of 0.1% and none of the 27 economists surveyed by Reuters think that will go up this time, though one thinks it could drop to 0.05%. The RBA don’t seem to be in a hurry to raise rates and that partly explains the Aussie weakness. 

What could change is what the central bank plans to do with its yield-curve control program. Now forgive me for getting rather detailed here – the RBA will likely keep its 0.1% target on the April 2024 bonds and not extend it to the November 2024 bond. In recent occasions it has done the extension. We can view this as the first step in policy tightening – with the second one being to end the yield curve control. Ending any form of policy stimulus should be Aussie bullish.

Now let’s round off with the rest of the highlights in the economic calendar. Outside of the RBA and the Fed, it’s worth noting it’s the July 4^th holiday in the States so Monday could be a bit quiet. There is also some important data out of China coming including private services sector data as well as inflation. Hot producer prices look like they are cooling off but the thing to watch is how much of it producers are passing onto consumers in the China CPI number for June.

Right thanks everyone, good luck trading this week and make sure to click on subscribe so you don’t miss the next episode of the week ahead