Ranges were tight across the board during the Asian session, with the low-yielding yen seeing the most action ahead of the Fed’s policy decision.
- Australia’s Westpac consumer sentiment up by 0.3% vs. 0.6% decline in May
- RBA Gov. Lowe: Next move in interest rates will be up, not down
- Lowe: Rate hikes “still some time away”
No immediate rate hike from RBA?
In a speech in Melbourne, Reserve Bank of Australia (RBA) Governor Philip Lowe hinted that any rate hike from the central bank is still “some time away.”
Lowe focused on causes of weak wage growth, citing a number of cyclical and structural factors including a decline in high-paying jobs, changes in global supply of workers, and the “uneven ability” companies to use new technologies to avoid cutting costs (read: labour).
The RBA head honcho warned that “low growth in wages is contributing to low rates of inflation in Australia,” enough to possibly prevent inflation from hitting the RBA’s target.Lowe also pointed out that slow wage growth diminishes their “sense of shared prosperity,” something that would “make needed economic reforms more difficult” if not addressed.
He did share his preferred growth rate, though, saying that “a world where wage increases started with a 3 rather than a 2 is both possible and desirable.”
At the end of the day, Lowe still reaffirmed the RBA’s bias that “the next move in interest rates will be up, not down.”
However, he also added that (emphasis mine):
“Any increase in interest rates, however, still looks to be some time away…
At this stage, a sustained pick-up in inflation…is likely to require faster wages growth than we are currently experiencing. There are reasonable grounds to expect that this increase in wages growth will occur.
But for the reasons I have spoken about today, this increase is likely to be only gradual. Given this, there is not a strong case for a near-term adjustment in monetary policy.”
Caution ahead of FOMC meeting
With not a lot of data on the docket, Asian session players started bracing for the Fed’s decision.
Since a rate hike is all but a done deal, many are worried that the announcement would inspire flight from emerging markets and higher-yielding bets to dollar-denominated assets.
Nikkei was an exception, however, thanks to spillover optimism from the relatively peaceful meeting between Trump and Kim Jong-Un.
- Nikkei is up by 0.44% to 22,978.1
- A SX 200 is down by 0.52% to 6,018.6
- Hang Seng is down by 0.62% to 30,910.6
- Shanghai index is down by 0.75% to 3,056.692
Gold managed to maintain its gains, while oil prices were a bit slippery (heh) after a report from the American Petroleum Institute (API) showed a surprise buildup of U.S. crude oil stockpiles.
- Gold is down by 0.03% to $1,295.25
- Brent crude oil is up by 0.25% to $75.60
- U.S. WTI is down by 0.05% to $65.93
Major Market Mover(s):
The low-yielding yen took more hits across the board as expectations of a Fed rate hike and its upward revisions to economic projections encouraged traders to dump the low-yielding currency.
USD/JPY is up by 31 pips (+0.28%) to 110.67
EUR/JPY is up by 31 pips (+0.24%) to 129.96
GBP/JPY is up by 30 pips (+0.21%) to 147.87
AUD/JPY is up by 18 pips (+0.22%) to 83.73
CAD/JPY is up by 18 pips (+0.21%) to 84.96
NZD/JPY is up by 22 pips (+0.29%) to 77.53
Watch Out For:
- 7:15 am GMT: Switzerland’s CPI (y/y) (0.3% expected, 0.4% previous)
- 8:30 am GMT: U.K.’s inflation numbers. Read our short trading guide here!
- 8:30 am GMT: U.K.’s PPI input (1.7% expected, 0.4% previous)
- 8:30 am GMT: U.K.’s PPI output to remain at 0.3%?
- 9:00 am GMT: Euro Zone’s employment change (q/q) expected to maintain 0.3% growth
- 9:00 am GMT: Euro Zone’s industrial production (0.6% expected, 0.5% previous)