RBI Holds Repo Rate at 5.25% as Inflation Risks and Global Uncertainty Persist 
BOJ Rate Hike Expectations Rise Ahead of September Meeting 
Singapore Central Bank’s Exchange Rate Policy Explained: Why MAS Uses the S$NEER Instead of Interest Rates 
BOJ Rate Decision in Focus as Sticky Inflation, Weak Yen Shape USD/JPY and Nikkei Outlook 
RBA Signals More Rate Hikes Possible as Australia Battles Stubborn Inflation 
Japan PM Sanae Takaichi Unveils Growth Plan as BOJ Independence Concerns Lift Bond Yields 
Eurozone Bond Yields Fall as Oil Slump Eases Inflation Fears Ahead of Central Bank Meetings 
Fed Holds Interest Rates Steady as Kevin Warsh Says Rising Treasury Yields Tighten Financial Conditions 
Brazil Cuts Selic Rate to 14% as Inflation Eases but Risks Persist 
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%).
