Aussie slides further on RBA rate cut talk

More RBA cuts to come

Following yesterday’s weaker employment data out of Australia, local banks there have been adjusting their interest rate forecasts. The latest has been National Australia Bank, which now sees a rate cut at both the October and December meetings, which would bring the benchmark rate to 0.5%. Yesterday, after the data, Commonwealth Bank had said it had brought forward its prediction for the next 25 bps rate cut to October. Last month it had forecast rate cuts in November this year and February next year.

Current market pricing is suggesting a more than 80% chance of a 25 bps cut to 0.75% at the October 1 meeting.

Heightened talk of RBA cuts has put pressure on the Australian dollar, with AUD/USD facing a third day of declines as it head toward the 61.8% Fibonacci retracement of the September 3-12 rally at 0.6766. AUD/JPY is down 0.2% at 73.31, facing losses for a fifth straight day. The FX pair is now down 1.6% from the near-term peak a week ago and is testing the 38.2% Fibonacci retracement of the September 3-13 rally at 73.198.

AUD/JPY Daily Chart

Source: OANDA fxTrade

Japan inflation at two-year low

A day after the Bank of Japan left both its benchmark rate and asset purchase programme unchanged, the country’s core inflation rate hit a two-year low. The national CPI ex-food index rose 0.5% y/y in August, a slower pace than July’s +0.6% and the lowest level since July 2017.

Yesterday, BOJ Governor Kuroda said yesterday he was more open to further easing and that the Bank needs to pay closer attention to the possibility of losing momentum towards its 2% inflation target. Well, that momentum appears to be non-existent at the moment as prices have failed to move higher in the past four months.

USD/JPY has moved lower for a second consecutive day today and is sitting on the 100-day moving average at 107.95.

USD/JPY Daily Chart

Source: OANDA fxTrade

Fed speeches the highlight on the calendar

There’s not much on the data calendar to affect markets as they head into the weekend apart from speeches from the Fed’s Williams and Rosengren. Maybe they will expand on the Fed’s current thinking and its limited rate reduction outlook. Canada’s retail sales for July will also be published, and are expected to show a 0.6% gain month-on-month after a flat reading in June.

Before the North American session kicks off, German producer prices for August will be released and the Bank of England publishes its Quarterly Bulletin after leaving rates unchanged yesterday. The flash Euro-zone consumer confidence indicator is expected to improve marginally to -7.0 in September from -7.1 last month.