ECB Rate Outlook: Ceasefire Eases Pressure but Hikes Still Expected in 2026 
Eurozone Recession Risks Rise as Middle East Conflict Threatens Growth, ECB Official Warns 
Japan Inflation Expectations Rise as BOJ Rate Hike Timing Faces Uncertainty 
BOJ Governor Kazuo Ueda Hints at Rate Hike as Inflation Pressures Build 
Kevin Warsh Advances Toward Fed Chair Role Amid Political Tensions 
Paraguay Holds Interest Rate at 5.5% as Inflation Remains Stable Amid Global Uncertainty 
South Korea Central Bank Signals Inflation Concerns as Oil Prices Surge 
BOJ Holds Interest Rates at 0.75% as Policymakers Signal Growing Inflation Concerns 
Driving Forces:
RBA has more reasons for further monetary policy easing. The RBA assumes inflation expectations will return to their long-term average, whereas we see a risk that they stay low for longer, helping cement low actual inflation. There has been a widespread decline in inflation expectations.
The further unwinding of the political risk premium and short positioning for the MXN. More focus on AUD fundamentals.
Stabilization of oil price to crawl higher over the next quarters as base metals to underperform the energy sector.
FX markets have tunnel vision. Fed Chair Yellen’s speech at Jackson Hole will be the key catalyst for a move, but even then it is not clear that broad ranges are set to break for the AUD. Downside risks remain, but a move below USD0.74 remains a big ask.
Trade Mechanism: Entry - 14.0270, 1y target: 12.50, stop: 14.70, Carry: approx.+2.9% p.a.
Risk Profiling: How much would USD/MXN rise if Donald Trump were to win the US presidency? And how much would AUD/USD fall? Certainly, the Trump risk is more fully priced into the MXN than the AUD, and this would limit the extent of the loss from his winning. Current pricing seems to overstate the risk (which we estimate at 25%).
