FX DAILY | 02.07.2019 | Marc-André Fongern

CURRENCY INSIGHTS - 02.07.2019 | MAF Global Forex

RBA - AUDUSD : With today's decision to cut rates by 25bp, the RBA has largely met the expectations of the market. The central bank's statement, however, suggests a sense of optimism, with inflation expected to rise in the medium term and the labour market set to improve on a steady basis. The continued weakness of the housing market coupled with the global downturn should continue to cause concern. In the absence of a sustained recovery of the domestic economy, another rate cut is likely to follow, which shouldn't particularly inspire the AUD for the time being. Should the FED actually lower interest rates several times within the coming months, while the RBA might not intervene until November, a slight appreciation of the Australian dollar appears possible. The lesson is clear: If wishes were horses, beggars would ride.

ECB - EURUSD : ECB POLICY MAKERS SEE NO NEED TO RUSH INTO JULY RATE CUT ... The ECB's capabilities are rather restricted, which is why it makes little sense to cut rates prematurely. Considering a potential trade war between the U.S. & Europe, this seems to be the only logical approach. Regardless of Draghi's successor, additional stimulus will be required to relieve the economy, while the U.S. government is obviously determined to impose tariffs against the European Union in the foreseeable future. We therefore expect the euro to weaken considerably within three months. Even Klaas Knot, basically an optimist, doesn't turn a blind eye to low inflation expectations and an imminent recession. In fact, his remarks confirm our assumption that the ECB intends to cut rates in 2019. Hence, we see no fundamental reason to favour the euro over the dollar.

STAY TUNED...