J.P. Morgan Now Expects Two ECB Rate Hikes Amid Inflation Pressures 
Taiwan Central Bank Expected to Hold Interest Rates Steady Through 2027 
Global Central Banks Hold Rates Amid Iran War-Driven Energy Price Surge 
Bank of Japan Holds Rates Steady Amid Inflation Concerns and Yen Weakness 
BOJ Holds Interest Rates Steady Amid Middle East Uncertainty 
Bank of Japan Signals Rate Flexibility Amid Yen Volatility 
Bank of Japan Governor Signals Gradual Progress Toward 2% Inflation Target 
RBA Raises Cash Rate to 4.10% in Closest Vote Since Transparent Voting Began 
Bank of Korea Nominee Shin Hyun-song Calls for Flexible Monetary Policy Amid Iran War Risks 
ECB Eyes Rate Hike Amid Iran Conflict-Driven Energy Price Surge 
Paraguay Central Bank Holds Interest Rate at 5.5% Amid Slowing Growth 
Goldman Sachs Delays Bank of England Rate Cut Forecast Amid Middle East Inflation Risks 
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%).
