AUDUD in play after RBA hikes rates 50bps – Daily Market Brief, July 5, 2022

European stocks are heading for a positive open after a mixed close in the previous session. US futures are pointing higher as traders return from the long weekend.

·     China services PMI rises at the fastest pace in a year in June as COVID restrictions ease

·      RBA raises interest rates by 50 basis points as expected, AUDUSD recovers from an initial fall

·     EZ & UK services PMI data is expected to confirm the preliminary readings

The FTSE outperformed its European peers yesterday, boosted by oil majors, which tracked oil prices higher. However, volumes traded on the FTSE were the lowest this year. Meanwhile, the DAX closed 0.5% lower following data that showed that investors’ confidence fell to a level not seen since May 2020, when pandemic lockdowns were taking hold.

China service PMI

Overnight, Asian markets pushed higher, helped by news that Biden could roll back some tariffs on China and by upbeat Chinese data, which showed that service sector activity grew at the fastest pace in almost a year as COVID restrictions eased and demand recovered. The Caixin services PMI jumped to 54.5 in June, up from 41.4 in May. This was well ahead of the 49.7 forecast and is boosting the market mood into the European open. That said, concerns surrounding the world’s second-largest economy remain amid a subdued property market, soft consumer spending, and fears of further COVID lockdowns.

RBA

The RBA raised interest rates by 50 basis points, in line with expectations, taking the OCR to 1.35% from 0.85%. The RBA has raised interest rates by 125 basis points over the past three meetings as it fights to bring down inflation, which is high but not as high as in some other countries. Expectations are for inflation to peak later this year before cooling towards 2-3% next year. The RBA highlighted the resilience of the Australian economy and tightness in the labour market. The RBA said that it expects to take further action to tighten monetary policy over the coming months, but this remains data-dependent.

AUDUSD initially sold off following the announcement in a buy the rumour sell-the-fact move. However, the Aussie has since recovered and is rising towards 0.6875.

Looking ahead

Following on from gains in Asia, the DAX is pointing to open 0.6% higher, and the FTSE is set to rise 0.25% on the open as the market mood improves and as attention shifts towards the services and composite PMI data.

Eurozone composite PMI is expected to confirm the preliminary reading of 51.9 in June, down markedly from 54.8 in May. This is the second reading, so it is not likely to be as market-moving as the first. Even so, it will highlight the extent of the slowdown in growth in the region as inflation rises to a fresh record high, squeezing household incomes.

Meanwhile, the UK services PMI is expected to confirm the preliminary reading of 53.1, the same as in May. The data comes after the manufacturing PMI for June was downwardly revised, marking the slowest growth in 2 years.

GBP/USD is holding steady at 1.2110 at the time of writing.

Disclaimer: This article is not investment advice or an investment recommendation and should not be considered as such. The information above is not an invitation to trade and it does not guarantee or predict future performance. The investor is solely responsible for the risk of their decisions. The analysis and commentary presented do not include any consideration of your personal investment objectives, financial circumstances, or needs.

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