Australian exchange foreign exchange trading reminder: the US dollar rose after the Federal Reserve loan survey was released, and the Australian dollar rose because the Reserve Bank of Australia may raise interest rates by 25 basis points

As a Federal Reserve survey showed that U.S. banks reported tighter credit standards and weaker loan demand in the second quarter, a sign that higher interest rates are having an impact on the economy, and the market expects stronger U.S. non-farm payroll data to be released this week. The Australian dollar was stronger on Monday, rising 1.05% against the dollar as markets expect the Reserve Bank of Australia to raise interest rates by 25 basis points on Tuesday.

On Tuesday (August 1), the dollar index was in a narrow range at the beginning of the Asian market, and is currently trading around 101.90. The dollar rose slightly on Monday as a Federal Reserve survey showed that U.S. banks reported tighter credit standards and weaker loan demand in the second quarter, indicating that rising interest rates are having an impact on the economy, and the market expects stronger U.S. non-farm payroll data to be released this week. The Australian dollar had a stronger performance on Monday, rising 1.05% against the dollar, as the market expects the Reserve Bank of Australia to raise interest rates by 25 basis points on Tuesday.The Federal Reserve's quarterly Senior Loan Commissioner Opinion Survey (SLOOS) shows that banks expect to further tighten standards for the remainder of 2023.

"Of course, in a higher interest rate environment, you would expect lending standards to tighten and demand to fall," said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York.

Chandler said the June U.S. unemployment rate report, due on Friday, is likely to be strong, and next week's June consumer price index (CPI) could show the first annual increase in inflation."Some people think this is just the tip of the iceberg," he said. "Gas prices are going up."

Friday's non-farm payrolls data will be the first of several data points to shape the Fed's decision on interest rates at the end of September, ahead of central bank leaders attending a Federal Reserve symposium in Jackson Hole, Wyoming, on August 24-26 that will focus on structural changes in the global economy.

Joe Manimbo, senior market analyst at Convera in Washington, said: "We'll have to see if the U.S. data continues to reflect the resilience of the U.S. economy, and if so, at least that will help the dollar hold steady between now and Jackson Hole."

The dollar index, which measures the greenback against six major currencies, rose 0.18 percent on Monday to close at 101.88, approaching a near three-week high of 102.05 hit last week.However, the dollar index was still down about 1 per cent on a monthly basis as the Federal Reserve's aggressive rate hike cycle - a key driver of dollar strength - may have ended after a 25 basis point hike last week.

Last Friday's data showed that U.S. annual inflation in June was the lowest in more than two years, and core price pressures eased somewhat, easing pressure on the U.S. FOMC to continue raising interest rates.

The euro rallied earlier on Monday as data showed that inflation in the euro zone fell further in July, while the euro zone resumed growth in the second quarter of 2023, expanding more than expected.

After data showed faster growth and lower inflation in Europe, the euro rose slightly to around 1.1045 against the dollar on Monday before retreating. In late trading in New York, the euro was down 0.18% at 1.0996.

The euro posted a monthly gain of about 1 per cent. Last week's European Central Bank policy meeting raised the prospect of a pause in interest rate rises in September, although analysts at Rabobank said Monday's data "allows the ECB to argue for a longer period of inaction or another rate hike".

The Bank of Japan eased its grip on interest rates last week, and the yen continued its decline, but the yen still registered its first monthly gain against the dollar since March.

After the Bank of Japan took new intervention measures on Monday, the dollar rose 0.77% against the yen in late trading on Monday to close at 142.26.

Last Friday, the Bank of Japan maintained ultra-low interest rates, increased the flexibility of its bond yield curve control (YCC) policy, and loosened its grip on the upper limit on long-term interest rates, sending the yen into a tailspin as traders tried to assess the impact.

The Bank of Japan's policy of holding down yields has weighed heavily on the yen over the past year, and Monday's new intervention suggests it may continue to do so.

Japan's benchmark 10-year Treasury yield rose to a nine-year high, prompting the Bank of Japan to make additional purchases to slow the rise in yields.

Elsewhere in Asia, data on Monday showed Chinese manufacturing activity fell for a fourth straight month in July, although the Aussie dollar and Chinese stock markets were buoyed by news that the Asian powerhouse would take further steps to stimulate economic recovery. The Australian dollar was also supported by widespread expectations that the Reserve Bank of Australia would raise interest rates by 25 basis points on Tuesday.

The Australian dollar rose 1.08% against the dollar in late trading on Monday to close at $0.6716.

Ahead of the Bank of England's policy meeting on Thursday,The pound fluctuated narrowly against the dollar on Monday, closing at 1.2834, down about 0.09%.The monthly line is still up 1.12%. The market is pricing in a similar probability of a 25 or 50 basis point hike on Thursday.

Tuesday Forward

institutional perspective

Morgan Stanley: Bank of England may announce quantitative tightening policy ahead of schedule on Thursday

Analysts at Morgan Stanley said the BoE could announce quantitative tightening ahead of its meeting on Thursday, along with a possible 25 basis point increase in interest rates. They expect the BoE to announce tentatively that it plans to increase the amount of government bonds it holds from the current £80 billion a month to £90 billion a month between October 2023 and September 2024 by increasing the amount of passive sales, while may continue to actively sell government bonds at a rate of £40 billion a year.

Kingswood: Bank of England more likely to raise rates by 25 basis points, guidance more closely watched than rate hikes

Rupert Thompson, chief economist at Kingswood, said weaker-than-expected inflation figures for June made it more likely that the Bank of England would raise interest rates by 25 basis points at its meeting on Thursday than by 50. Any potential guidance on future measures is likely to be more meaningful to markets than actual rate rises. "Markets will be watching for any clues about how much further interest rates still need to rise," he said. "In that regard, they are likely to be disappointed because the BoE is likely to stick to the rather unhelpful mantra that further policy tightening is needed if there is evidence of more persistent inflation."

Rabobank: The Bank of England forecasts that the economy will avoid recession and issues hawkish guidance that will benefit the pound the most

Jane Foley, currency strategist at Rabobank, said in a note that for sterling bulls, the most positive outcome of this week's Bank of England meeting for the pound is that the Bank of England forecasts that the UK will avoid recession and that the Bank of England is "more hawkish" on the outlook than the European Central Bank and the Federal Reserve (both signalled last week that interest rates may be near their peak). Markets are unsure whether the Bank of England will choose to raise interest rates by 25 basis points or 50 basis points, although excessive tightening will increase the risk of a recession.

National Australia Bank: The Reserve Bank of Australia is not expected to raise interest rates in August

National Australia Bank adjusted its rate-hiking expectations for the Reserve Bank of Australia after the release of second-quarter inflation data last week, and they do not expect the Reserve Bank of Australia to raise interest rates in August. Analysts at National Australia Bank said that service sector inflation remained stubbornly high, which in itself increased the risk that inflation would not return to its 3% target within a reasonable time frame. This does not even take into account the likely rise in prices for many other services in the September quarter. They said they would continue to monitor the latest data on the economy's response to rate hikes so far.

Nomura Securities: The Reserve Bank of Australia is expected to raise interest rates again, but it will take until November

Nomura analysts described Australia's latest inflation data as a "surprise" but warned that monetary policy did not appear to be particularly tight as the unemployment rate remained below the non-accelerating inflation rate (NAIRU), while other central banks were still raising interest rates. They argued that the RBA would be equally sensitive to any upside inflation surprises in the future, given the long-term expectation of inflation returning to the target range. They now expect the RBA to raise interest rates again in November this year.

Westpac (601099) Bank: The Reserve Bank of Australia's August interest rate hike is an appropriate decision

Westpac said it expected the RBA to be cautious about a positive signal for headline inflation in the June quarter. As seen at the May meeting, there are risks to the path to the inflation target, particularly in 2024, and we should see the RBA take more insurance measures and maintain its tightening bias. Westpac said a further increase in the cash rate should be an appropriate policy response at the August meeting. They had previously been adamant that further rate hikes would be required in September. However, they now believe that a continued tightening bias beyond August should be sufficient.

Federal Bank of Australia: Reserve Bank of Australia is expected to raise interest rates by 25 basis points

The Reserve Bank of Australia expects the Reserve Bank of Australia to raise its cash rate by 25 basis points in August to 4.35%. The Reserve Bank of Australia had noted in July that new staff forecasts and economic data would inform the August decision. Overall, the Commonwealth Bank expects the labour market to remain strong, with lingering concerns about the outlook for inflation and wage growth, which will overshadow slightly weaker-than-expected June quarter inflation data and weak retail sales data. The Reserve Bank of Australia is expected to maintain its forecast for headline and potential inflation, which will not return to the upper end of its target range until mid-2025. In addition, the August rate hike is expected to be the last of the current rate hike cycle, and monetary policy will begin to ease in the first half of 2024.

Brown Brothers Harriman: Bank of Japan's "half-hearted" easing will only weigh on the yen

Win Thin, global head of monetary strategy at Brown Brothers Harriman, said in an interview that the Bank of Japan's surprise easing of its yield curve control (YCC) was a "half-hearted" attempt at policy change that will only weigh on the yen in the future. "You can't have free movement of capital and control interest rates and exchange rates, and the BoJ is trying to do all three. That will lead to a change in the currency exchange rate. Expect USD/JPY to rise to 145." The BoJ's policy decision on Friday was very puzzling. "They kept control of the yield curve and maintained the target, but made it a moving target in terms of the ceiling. I think they wasted a lot of credibility. The rise in the Japanese stock market and the fall in the yen since Friday tell me that the market really doesn't trust the BoJ ".