Australian dollar spikes higher after Q2 inflation data but reverses quickly. Headline CPI rose 0.4% qoq, 1.1% yoy versus expectation of 0.4% qoq, 1.1% yoy and Q1's -0.2% qoq, 1.3% yoy. RBA trimmed mean CPI rose 0.5% qoq, 1.7% yoy versus expectation of 0.4% qoq, 1.5% yoy and Q1's 0.2% qoq, 1.7% yoy. RBA weighted median CPI rose 0.4% qoq, 1.3% yoy versus expectation of 0.4% qoq, 1.3% yoy and Q1's 0.1% qoq, 1.3% yoy. Today's inflation data is seen as crucial to RBA's decision on another rate cut in August. The markets are paring some bets for a cut as the set of inflation data wasn't bad enough to solidify the case. Pricing as seen in futures markets for a 25bps cut in August is down from around 55% chance to 49% chance. But inflation still stayed low and was possibly not strong enough to convince all board members to stand pat. Overall, the August RBA meeting is still live.
Yen reversed yesterday's gain as markets changed their expectations once again and see BoJ announcing significant stimulus later this Friday. That might include pushing interest rate further into negative territories and adjusting the composition of its asset purchase program. The Japanese currency rebounded yesterday on reports that the government would announce a less bold than expected fiscal stimulus package. And that might give BoJ the leeway to adopt a smaller monetary easing package or even stands pat. But there are talks that BoJ could be worried after another spike in Yen exchange rate if it disappoints the markets. After all, there will be much volatility leading up to and after the BoJ announcements. And, beware.
FOMC rate decision will be the main focus today and it's widely expected to keep policies unchanged. There will be no post meeting press conference and attention will be solely on the statement. It's likely the Fed will stay non-committal to the timing of next hike but the statement could include an upgrade on the assessment of the economy. But the details could only be found in the minutes to be released on August 17. Currently fed funds futures are pricing in 45% chance of a hike by December and that will very much be data dependent.
Elsewhere, UK Q2 GDP is the main focus in European session. Eurozone will release M3, German Gfk consumer sentiment. Swiss will release UBS consumption indicators. US will also release durable goods orders and pending home sales.