US
USD is down against most major currencies, the sell-off in stocks and bonds eased while crude oil prices are holding near a three-week high around $91 a barrel. There was no fundamental catalyst behind today’s USD slump, suggesting the DXY index should hold above its 200-day moving average.
The FOMC minutes of the July 28-29 meeting take the spotlight later today (7:00pm London, 2:00pm New York). The minutes are poised to strike a hawkish tone and reveal how far support for a rate hike extended beyond the three dissenters (Beth Hammack, Neel Kashkari, and Lorie Logan). However, the recent string of soft US data will leave the minutes looking somewhat dated.
Instead, the minutes will offer valuable insights into the FOMC’s thinking on bigger policy themes: (i) the legacy of five years of high inflation, (ii) the economic impact of recent supply shocks, (iii) whether AI-related price pressures are narrow or part of a broader inflation dynamic, (iv) and how much accommodation the balance sheet is still providing
SOUTH KOREA
KRW is outperforming while the KOSPI plunged by nearly -6%, flipping the May-June pattern when the KOSPI rallied but KRW weakened. That earlier divergence reflected a domestically driven equity rally that triggered foreign portfolio rebalancing. Overseas investors sold Korean stocks and repatriated the proceeds, weighing on KRW.
Since July, the pace of foreign selling of KOSPI has slowed, while domestic buying has cooled. This is generating less portfolio outflow and allowing KRW to remain resilient despite the KOSPI’s decline. Beyond the KOSPI-KRW relationship, the fundamentals for KRW are positive. KRW is significantly undervalued, South Korea has a massive current account surplus (9.4% of GDP in Q1), full WGBI inclusion by November should sustain foreign bond inflows, and BOK signaled more rate hikes are in the pipeline.
AUSTRALIA
AUD is underperforming across the board, and Australian bond yields are lower. Australia Q2 wage growth matched consensus and will keep the RBA sidelined. Wages rose 0.8% q/q for a third straight quarter to be 3.2% y/y vs. 3.2% in Q1. Annual wage growth in Q2 was softer than the RBA’s projection of 3.3% and underlying private sector pay pressures were even more subdued. Private sector wages growth eased to a four-year low at 3.1% y/y vs. 3.2% in Q1, while public sector wages growth held at 3.4% y/y for a second straight quarter.
RBA cash rate futures continue to imply 60% odds of one final 25bps hike by year end to 4.60%. In our view, the risk is skewed towards a more extended pause in the RBA tightening cycle because policy is already somewhat restrictive. Still, Australia’s attractive carry alongside the country’s strategic exposure to commodities linked to energy, AI, and defense remain key AUD tailwinds.
UK
GBP/USD is up and nearing key resistance at 1.3600. UK July CPI report largely matched consensus and will keep the BOE sidelined. Headline CPI rose to 2.9% (consensus: 2.9%, BOE projection: 2.8%) vs. 2.6% in June reflecting a change in the Office of Gas and Electricity Markets (Ofgem) energy price cap in July.
Core CPI printed at 2.6% y/y for a third straight month, a tick higher than anticipated (consensus: 2.5%). More importantly, services CPI was in line with expectations and the BOE’s projection at 3.4% y/y vs. 3.6% in June. Cooling wage growth points to softer services inflation ahead.
The swaps curve price-in 50bps of BOE rate hikes in the next twelve months. That’s too aggressive in our view given the UK’s negative output gap, and leaves rate-hike expectations vulnerable to a dovish repricing. For now, the UK’s favorable growth-inflation mix offers GBP good support.
CANADA
USD/CAD dipped 0.2% after the US postponed the implementation of 50% tariffs on nearly $20 billion in imports from Canada (0.85% of Canada’s GDP) until end of day Friday. Prime Minister Mark Carney said “Substantial progress has been made, although there is important work still to be done” while President Donald Trump went as far as saying both countries “have a DEAL!”
Easing trade friction improves Canada’s favorable growth-inflation mix. USD/CAD needs to break under its 200-day moving average at 1.3848 to gain downside traction.
INDONESIA
As was widely expected, Bank Indonesia (BI) kept rates on hold at 5.75% for a second straight meeting. BI can afford to pause after delivering 100bps of tightening since May. USD/IDR has topped-out after reaching an all-time high of 18190 in June, and inflation remains within the bank’s 1.5%-3.5% target range.
