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Analysts at Westpac Banking Corporation explained that the Federal Reserve kept rates steady as expected but seems on track to hike next month.

Key Quots:

“Equity sentiment was mostly soft, as the Trump administration proposed 25% tariffs on $200bn of goods imports from China.”

“Commodities came under pressure. AUD/USD probed under 0.74 but currencies saw limited net movement. Today we see Australia June trade data and a likely rate rise by the Bank of England.”

“Softer sentiment in Asia had limited impact initially, but as US and European yields edged higher, European stocks faltered: Germany’s DAX closed -0.5% and UK’s FTSE -1.2%. Commodity weakness persisted including copper and iron ore, while oil prices slipped further on reports of increased output and inventories.”

“US stocks opened higher but then faded, with a slight dip after the FOMC statement and ongoing unease over US trade policy. The Wall Street Journal backed yesterday’s Bloomberg report that the US would soon propose 25% rather than 10% tariffs on the $200bn in Chinese goods imports being reviewed. After the NYSE close, officials confirmed this was the case, with hearings due later this month.”

“The Fed left interest rates steady as universally expected but upgraded its assessment of the economy to “strong” from “solid”. Meanwhile the labour market has “continued to strengthen,” while inflation remains “near 2 percent” and the risks are seen to be “roughly balanced”. “

“The Fed also reiterated that the stance of policy remains “accommodative” and forward guidance was unchanged, the Fed noting they expect to make “further gradual increases” in the federal funds rate. The statement was brief as usual and the vote was 8-0.”

“Currencies mostly saw limited net movement, though with JPY outperforming and commodity currencies underperforming in a slightly sour risk mood. EUR/USD slipped 30 pips to 1.1660 and AUD/USD eventually slid below 0.7400 to 0.7390 while the kiwi underperformed, NZD/USD -0.4% over the day to 0.6790. Hence AUD/NZD edged up a touch to 1.0900. The Japanese yen showed signs of risk aversion returning, after USD/JPY had been supported by the Bank of Japan decision. The pair slipped from above 112 in London to as low as 111.40 in NY.”

“The US ISM manufacturing survey fell more than expected in July, to 58.1 from 60.2 in June; new orders slipped to 12 month lows, price pressures eased and key gauges of capacity constraints such as supplier deliveries and order backlogs eased. Survey respondents are “overwhelmingly concerned” about tariffs. Nevertheless, the overall index continues to hold at historically elevated levels.”