RBA More Alert and Less Certain in its Inflation Fight

The RBA left the cash rate on hold at 4.35%, but their rhetoric suggests the Board is more alert to upside inflation risks. Indeed, the RBA Board appears less certain that inflation is moderating as they’d like and there’s lingering concerns about persistent price pressures.

Crypto Continues Its Retreat

In 24 hours, crypto capitalisation fell 2.2% to $2.36 trillion. Bitcoin’s relatively moderate 1% decline contrasts with a much deeper dive in altcoins. Ethereum fell 3.3%, Solana plunged 7.8%, and Dogecoin dropped 9.2%.

RBA Readiness to Hike Positive for AUD

The Reserve Bank of Australia kept its key rate at a 12-year high of 4.35%. The market widely expected the decision, so it did not cause a spike in volatility. However, we note that the RBA warned that it was ready to raise the rate.

GBP/USD Eyes UK Inflation

The British pound has edged lower on Tuesday. GBP/USD is trading at 1.2683 in the European session at the time of writing, down 0.16% on the day. There are no UK events on Tuesday, while the US releases retail sales. On Wednesday, we’ll get a look at UK inflation for May.

U.S. Retail Sales Eked Out a Gain in May 

After a breather in April, consumers were back at it in May. While not large, retail spending growth edged back into positive territory. With other evidence (slowing hire rate, uptick in unemployment rate etc.) pointing to the labor market cooling however, any deceleration there is likely to see retail spending follow suit. With two months of data in for the quarter, retail spending is currently tracking 1.6% q/q (annualized) for Q2 -  an uptick from a -0.8% (annualized) decline last quarter.

Will BoE Signal Rate Cuts Looming?

At its latest gathering, the Bank of England (BoE) appeared dovish enough to encourage market participants to assign a decent chance for a first quarter-point rate cut in June, but that didn’t last for long as the hotter-than-expected inflation data for April, and especially the stickiness in underlying price pressures, prompted investors to take their summer rate cut bets off the table.

SNB Expected to Cut, But Risk of Disappointment

The Swiss National Bank (SNB) got the ball rolling with interest rate cuts back in March, becoming the first major central bank to start its easing cycle. Inflation in Switzerland only peaked at 3.5% y/y and has been within the Bank’s 0-2% target for the past year. Investors might therefore be right to think that further easing is on the cards at the June meeting.

US: Small Business Optimism Index Improves in May

NFIB's Small Business Optimism Index rose 0.8 points to 90.5 in May, beating market expectations for a flat reading of 89.7.

Will Bank of Japan Hint at a July Hike?

At its latest gathering on April 26, the Bank of Japan (BoJ) decided to keep the range for its benchmark rate unchanged between 0% and 0.1% as was widely expected. Policymakers upgraded their inflation projections, but they did not signal a reduction of their bond purchases, nor did they signal a strong intention to raise interest rates again soon. This resulted in a weakening yen and two intervention episodes by Japanese authorities in the following days.

US in the Spotlights Today

The US is in the spotlights today. Tonight’s FOMC meeting is preceded by important CPI numbers. We see upside risks for the headline number (0.1% m/m, 3.4% y/y) and are more neutral on the core reading (0.3%, 3.5%). It serves as some last-minute input for the Fed even though it probably won’t have been factored in into the new projections. The policy rate will remain at an unchanged 5.25-5.5%, directing market’s focus towards the median rate forecasts.