Australian Policymakers Remain Decidedly Dovish

During its latest meeting, the Reserve Bank of Australia discussed numerous developments both domestically and abroad as anticipation grows that the Central Bank will be forced to ease monetary policy further during the second half of the year to accommodate the economy.  With conditions in many major trading partners deteriorating on the basis of industrial production and commodities demand, the outlook for the nation remains fragile. While the “Brexit” decision was discussed, because the two nations have very limited bilateral trade, the referendum results were expected to have very little impact on forward expectations for the economy.  However, weak inflation which remains below the target range combined with mixed employment and housing data are giving way to speculation that another 25 basis points will be slashed from the key rate in the coming months.  The Australian dollar fell after the publication, with AUDUSD managing to hold the 0.7500 level.

Expectations are rising that the Japanese government is preparing further stimulus measures for the economy following the sweeping election wins earlier in the month as Abe and his cabinet signal markets of their expansionary intentions.  Although aggressive easing measures including quantitative easing and negative interest rates have helped keep the Yen weaker versus peers, supporting the export economy, the program has failed to keep inflation elevated, with the economy once more in the throes of deflation.  While in theory all these measures are effective when it comes to restoring inflation and growth, the issue facing Japanese policymakers is that many advanced economies are pursuing the same strategy, reducing the effectiveness for all parties.  After falling nearly -5.00% versus the US dollar since the election results were tallied, the Yen is modestly stronger on the session, potentially giving way to a pullback in the USDJPY pair following the recent rally.