Investors Following the Bouncing Tariff Ball and Are Meanwhile Surprised by an Unexpected Australian Interest Rate Decision – Currency Thoughts
Investors Following the Bouncing Tariff Ball and Are Meanwhile Surprised by an Unexpected Australian Interest Rate Decision
July 8, 2025
Continuing tariff policy uncertainty is making day-to-day financial market activity very choppy. President Trump had intensified tariff war fears on Monday by disclosing some hefty planned import levies, for instance 40% on goods shipped from Laos, 36% from Thailand, 35% from Serbia, 26% from Kazakhstan, 30% from South Africa, 25% from Japan, South Korea and Malaysia and 35% from Bangladesh. Switching stances today from confrontational to cooperative, he floated an idea that might hold the tariff against the European Union down to 10% if negotiations evolve correctly before the August 1 deadline. The dollar dipped 0.2% overnight against the euro and 0.1% relative to the Swiss franc, while recording an uptick of 0.2% relative to sterling and Japanese yen.
A much sharper movement of the dollar overnight (down 0.8%) occurred against the Australian dollar. Analysts had been all but convinced that this week’s scheduled policy review at the Reserve Bank of Australia would result in a 25-basis point interest rate cut but instead were shocked by news that officials there had voted 6-3 not to changed the Official Cash Rate of 3.85%. A reduction would have been the third so far, following 25-basis point moves in February and May and seemed likely in light of in-target CPI inflation of 2.4% in the final quarter of 2024 and first quarter of this year, plus some dovish remarks from RBA officials since the previous policy review. Explaining today’s action in its released statement,
The Board continues to judge that the risks to inflation have become more balanced and the labour market remains strong. Nevertheless it remains cautious about the outlook, particularly given the heightened level of uncertainty about both aggregate demand and supply. The Board judged that it could wait for a little more information to confirm that inflation remains on track to reach 2.5 per cent on a sustainable basis.
Presumably, second-quarter CPI figures to be released in Australia on July 30 will be a key to next month’s decision, but by refusing to disclose how she had voted today, RBA Governor Bullock injected an element of uncertainty into the matter.
Today’s hopes that tariffs might not be as high as feared, and future growth accordingly not as low, helped lift 10-year sovereign debt yields by five basis points in the United States, Germany, Great Britain, France and Italy and by four bps in Japan and Spain.
U.S. stock futures prior to today’s open were little changed. Equities in Asia closed up 1.8% in South Korea, 1.1% in Hong Kong, 0.7% in China and 0.3% in India and Japan. Australia’s stock exchange did not rise, however, reflecting disappointment at the lack of a central bank rate cut there. In Europe, share prices so far are up 0.4% in Germany and Italy.
The price of Bitcoin rebounded 0.6%, but those of oil and gold are 0.2% softer so far today.
Turning to today’s data releases of note,
Monthly measures of Australian business confidence and business conditions compiled by National Australia Bank went up three and nine points, respectively, in June. The former matched the best reading since the start of 2023, while the latter reached a 16-month high.
U.S. small business sentiment last month edged 0.2 index points lower and was closer to August’s half-year low than to its September 2024 high.
The German trade surplus of EUR 18.4 billion in May was 17% wider than in April, reflecting a 3.8% monthly drop in imports. The French trade deficit in January-May of EUR 35.4 billion was similar to that of EUR 34.3 billion in the first five months of 2024.
Ireland’s construction purchasing managers index in June of 48.4 connotes the deepest rate of contraction in five months.
Japan’s economy watchers index, a gauge of service sector worker sentiment, rose 0.4 points to a 3-month high last month but, at 45.0, remained well below the 50 threshold.
Dutch consumer price inflation last month was left unrevised at a 13-month low of 3.1%. Lithuanian and Latvian CPI inflation rose to 2-month high of 3.7% and 3.8% in June, while Hungarian inflation of 4.6% was at a 3-month high. Between September 2022 and January 2023, CPI inflation in those four economies had crested at 14.5%, 24.1%, 22.2% and 25.7%.
Taiwanese CPI inflation in June slowed to a 51-month low of 1.37%.
Copyright 2025, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: French and German trade balances, Reserve Bank of Australia, U.S. small business sentiment
ShareThisYou can leave a response, or trackback from your own site.
