Today, the economic calendar is very light in terms of data releases. That doesn’t imply a quiet day though, as we have a plethora of central bank speakers on the agenda. In the UK, focus will be on BoE MPC members Andy Haldane and Ben Broadbent. Following the latest BoE meeting, both Haldane and Governor Carney hinted that even though they voted for rates to remain unchanged, they could still support a rate hike later this year. Given that MPC members McCafferty and Saunders voted for a rate hike at that meeting, this suggests that 4/8 members currently on the Committee could vote for a hike soon.
This places a lot of emphasis on Broadbent’s comments, as he has not expressed his opinion on policy recently. If he shares a similar view to Haldane and Carney, it would imply that the majority of the MPC is now leaning towards a hike, a factor that could support GBP.
GBP/USD traded in a consolidative manner on Monday, staying between the key support barrier of 1.2850 (S1) and the resistance of 1.2910 (R1). The rate is also trading above the prior downside resistance line taken from the peak of the 18th of May, which keeps the door open for a rebound and a test near the 1.2910 (R1) line. A decisive break above that level is possible to open the way for our next resistance hurdle of 1.2975 (R2). The catalyst for such a move may be hawkish signals by BoE’s Broadbent today.
Elsewhere, ECB Executive Board member Benoit Coeure will deliver remarks at the FX Contact Group meeting. In the US, the main event will probably be a speech by Fed Board Governor Lael Brainard on ‘Normalising Central Banks’ Balance Sheets’. Brainard is usually among the doves of the FOMC. In fact, a few days before the June FOMC meeting, where she voted for a rate hike, she appeared quite cautious and said that if soft inflation data persist, that could lead her to reassess the appropriate path of policy. Given that the nation’s core CPI rate declined further after these comments, we think she will probably reiterate an equally cautious view today. Something like that could weigh on the dollar, but given that market participants are aware of her stance, any negative reaction may be modest.
Survey suggests Australian wages accelerated in Q2
According to the NAB business survey for June, Australian wage growth accelerated in Q2. This is quite important in our view, given that the softness in wages was one of the main reasons that RBA policymakers have refrained from shifting to a more optimistic bias as many of their counterparts have. More signs that wages are picking up in the coming months could generate speculation that the RBA could change its tone soon, especially considering that the rest of the Australian economy is solid. Until then, however, we think that the AUD may underperform most of its major counterparts, particularly the EUR, GBP and CAD. We base this on the fact that the ECB, the BoE and the BoC, have all shifted to a more hawkish stance recently, supporting their respective currencies.
AUD/USD has been trading in a sideways mode between 0.7575 (S1) and 0.7630 (R1) since the 4th of July. As such we prefer to take the side lines for now and wait for the rate to exit that range. Nevertheless, given that the decline started on the 30th of June came after the rate tested the longer-term downside resistance line taken from the high of the 21st of April, we believe that there is a higher likelihood for a downside exit, rather than an upside. A decisive dip below 0.7575 (S1) could confirm the case and is possible to set the stage for extensions towards our next support barrier of 0.7525 (S2).
As for the rest of today’s highlights:
The only noteworthy indicators we get throughout the day will be from the US. The NFIB small business optimism index for June and JOLTS job openings for May are both due out, though no forecast is available for either figure.
GBP/USD
Support: 1.2850 (S1), 1.2800 (S2), 1.2760 (S3)
Resistance: 1.2910 (R1), 1.2975 (R2), 1.3030 (R3)
AUD/USD
Support: 0.7575 (S1), 0.7525 (S2), 0.7500 (S3)
Resistance: 0.7630 (R1), 0.7680 (R2), 0.7710 (R3)
