Forex and Currency Analysis

Australia’s preliminary July 2025 manufacturing PMI is 51.6, up from 50.6 in June. The flash services PMI for July is at 53.8, rising from 51.8 the previous month. The Composite PMI increased to 53.6 from 51.6. These figures indicate growth in both the manufacturing and services sectors. Reserve Bank of Australia Governor Bullock will discuss “The RBA’s Dual Mandate – Inflation and Employment” at 1:05 PM Sydney time, 03:05 GMT, and 11:05 PM US Eastern time. Topics of interest include the USDJPY technical analysis, influenced by the Japanese upper-house election, and AUD/USD reaching an 8-month high of 0.6604. There’s also talk about Trump’s proposal for tariffs on EU goods and its impact on EURUSD. Foreign exchange trading involves risks that can lead to losses exceeding your initial investment. It’s important to understand these risks and seek advice from independent financial advisors. InvestingLive is not a registered investment advisor and may earn compensation from advertisers based on user actions. Always consider your investment goals, experience, and risk tolerance when trading forex.

Central Bank Strategies and Market Implications

The latest PMI figures show that the Australian economy is growing faster than expected, challenging any thoughts of an interest rate cut. These strong results suggest that the central bank is unlikely to change its policy soon, so traders should reconsider any bets on rate reductions. Supporting this view, recent inflation data showed that the monthly CPI unexpectedly rose to 4.0% in May 2024, significantly above the Reserve Bank’s target of 2-3%. With inflation remaining high, we believe the central bank will concentrate on controlling prices. This increases the likelihood of a hawkish stance in the upcoming weeks. Moreover, the job market is tight, with the unemployment rate dropping to 4.0% in May 2024, a historically low figure. Bullock’s upcoming speech on the bank’s dual mandate, combined with this strong employment data, justifies holding rates steady or possibly hinting at future tightening. This scenario nearly eliminates the chances for a rate cut this year. For derivative traders, this means we should dismiss rate cuts and prepare for a “higher for longer” situation. Strategies like buying options to guard against a rate hike, or using interest rate swaps to speculate on short-term rates remaining high, are becoming more appealing. The market has been overly optimistic about easing, and a reassessment of expectations could happen soon. Given the robust domestic data, we anticipate continued support for the Australian dollar. Historically, when Australian economic performance exceeds expectations and rate cut speculation fades, the AUD tends to strengthen against currencies like the US dollar. We see potential in buying call options on AUD/USD to benefit from further upside, especially if the governor’s speech signals a hawkish outlook. Create your live VT Markets account and start trading now.

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