Headlines

*European bourses lower across the board, futures in the red

*Dollar climbs to fresh multi-year high as euro gets hit

*US President Biden expected to roll back some tariffs on Chinese imports

*RBA hiked by 50bps as expected, reiterated its guidance on rates

US equity futures are indicating a softer opening as European stock markets are pressured. Traders in the US are back from a long holiday weekend with a quiet schedule ahead. There’s a clear defensive bias in equities which is seeing food and healthcare supported in Europe. A push in the EU to agree on a seventh sanctions package on Russia before the summer holidays start is mooted.  

USD sets a new 2022 best at 106.24 after taking time out to mark US Independence Day. That means the euro is slumping to fresh multi-year lows below 1.0341 support. EUR/CHF is now sub-0.9950 and EUR/JPY below 140. GBP is off again as the BoE flags a material deterioration in the global economic outlook. JPY is holding up better than others amid greenback strength on risk and rate grounds. AUD is underperforming and under 0.68 with near-term support at 0.6763.

Event Takeaway – RBA delivers back-to-back 50bp hikes

The RBA is getting on with the job of normalising policy. It hiked rates by 50bps as expected though there were no more aggressive policy surprises. The bank cited low unemployment and high savings as keeping demand supported. Medium-term inflation expectations remain well-anchored, and the RBA stressed this remains the case.

Policymakers stuck with their forward guidance that further rate hikes with be coming with the size and timing data dependent. The RBA specifically mentioned the Q2 CPI print (on July 27) as a key input for the inflation outlook. The aussie is struggling today due to the wider risk-off mood.

Chart of the Day –DXY punches to new highs

The euro is getting sold into heavily this morning. It hit its worst levels since December 2002. EUR/USD has cut through the 2022 low at 1.0350 and the 2017 low at 1.0341. Parity is now the next meaningful level of support. This means the DXY has posted new multi-year highs last seen in 2002.

There’s no obvious catalyst though the subdued risk sentiment is one factor. EUR/CHF looks to have properly broken parity as well, as the SNB looks to be out of the game. Next upside level on the DXY is above 108.