Rate Cuts, Trade Risks,and Market Nerves: A Global Currency Snapshot 

AUD

Last week’s labour market report for June was a clear disappointment, which both weighed on the Aussie dollar and raised the chances of an RBA rate cut in August. Only 2k net jobs were added to the Australian economy last month, well below the +20k estimate, while the unemployment rate unexpectedly jumped to 4.3% (from 4.1%), its highest level since November 2021. We were surprised that the RBA held interest rates steady at its July meeting, so last week’s data should effectively seal the deal for a cut next month, which is now roughly 90% priced in by swap markets following the release of the data. This Thursday’s business activity PMI figures appear unlikely to dissuade the central bank from lowering rates again next month. The RBA’s July meeting minutes (Tuesday) will probably take on more importance, as this should shed light on whether the committee is erring towards easing policy again at the next meeting.

NZD

The New Zealand dollar sold-off on the greenback last week, although it managed to claw back some ground late on Friday. Risk sentiment was dented by President Trump’s latest tariff threats .

USD

Beyond the Powel headlines, the US economy continues to show resilience even as the first hints of tariff impact appear in the inflation numbers. Retail sales, weekly jobless claims and industrial production all came in higher than expected. While inflation numbers did not deviate much from expectations, core goods inflation firmed up somewhat, in a hint of tariff pass through, as the positive impact of pre-tariff stockpiling fades. Full employment, healthy demand growth, a massive fiscal deficit and firm inflation are not consistent with easier policy and we expect the Fed to resist Trump’s pressure and keep rates unchanged next week.

CNY

A still extremely stable USD/CNY rate meant that the yuan outperformed most of its peers last week. It was quite an interesting one, from the macro perspective, given the plethora of data released. Most eye-catching was the GDP growth, which, again, surprised to the upside. The second quarter saw a limited slowdown, but a year-to-date growth of 5.3% suggests that achieving a 5% growth target is not entirely out of the question. That said, uncertainty is high, with tariff impact being one of the major sources. Not to mention that the most recent other data is, at best, mixed. The property sector downturn continues, and given that, it is not surprising that domestic demand remains underwhelming. In the near term, the focus remains on US tariffs on Asian countries. US Treasury Secretary Bessent signalled, however, that markets should not be worried about the August 12 deadline for China. This and other headlines suggest a potentially more conciliatory approach from the US side, which gives some hope that the overall fallout from tariffs will be relatively contained. 

JPY

The USD/JPY exchange rate made another march towards the 150 level last week, although the yen managed to claw back some ground against most of its peers ahead of Sunday’s election. We have not yet received the results of the vote as this is written, although with the coalition appearing on course to lose its majority in the upper house, we do see some more room for near-term downside in the yen should this be confirmed. The main data releases due out this week will be the July Jibun Bank PMI numbers on Thursday and the Tokyo inflation report on Friday. The yen will, however, likely take its cue from the election fallout and, of course, the ongoing trade negotiations. For now, President Trump remains committed to hiking tariffs on Japan to 25% from the 1st August, while indicating last week that it may be difficult for both sides to agree on a deal before the deadline. We see it as a coin-toss as to whether a deal will be done in time, creating potential two-way risks for the yen this week.