The Reserve Bank of Australia Governor Bullock is addressing the RBA’s dual mandate on inflation and employment. A live link to the speech is expected shortly.
USD/JPY technical analysis is focusing on the Japanese upper-house election. The dollar has found bids in early European trading. Meanwhile, Trump is pushing for a 15–20% minimum tariff on all EU goods, causing the EUR/USD to move lower.
Core Inflation Outlook
The RBA Governor noted that core inflation in the second quarter may not have slowed as much as first anticipated. There were armed clashes early Thursday between Thai and Cambodian forces.
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Focus On Reserve Bank Of Australia Policies
We are now focusing on Bullock’s recent statement that Q2 core inflation may be stubbornly high. This aligns with the latest data showing the monthly CPI indicator unexpectedly rose to 4.0% in May, surprising many who expected a continued slowdown. This suggests the Reserve Bank of Australia may hold its 4.35% cash rate for longer than previously anticipated.
Given this hawkish tilt, we should reconsider any positions betting on near-term rate cuts. Market pricing has already shifted dramatically, with interbank cash rate futures now implying a more than 50% chance of another rate hike before the end of the year. Traders may look to sell Australian government bond futures to position for higher yields.
This policy divergence, with the central bank sounding firm while others like Powell face pressure for cuts, creates a supportive environment for the Australian dollar. We could see traders buying AUD/USD call options to capture potential upside, as higher local rates attract foreign capital. Historically, periods of RBA hawkishness when the Fed is neutral or dovish have led to sustained currency strength.
However, the push by Trump for significant tariffs introduces a conflicting variable that could increase market choppiness. Such protectionist measures typically weaken risk-sensitive currencies, creating a tug-of-war for the AUD. This uncertainty suggests strategies that profit from increased volatility, such as buying straddles on the currency pair, could be prudent.
