Philippines Emerges as Southeast Asia Renewable Power Pacesetter

In Australia, the RBA Board once again left the cash rate unchanged at 4.35%. The Board's statement emphasised that there remains considerable uncertainty around the economic outlook, particularly as it relates to policy lags, the path for consumption, and consequently inflation's path back to target. Strong population growth has provided considerable support for aggregate demand, GDP up 1.1%yr in the March quarter despite per capita activity declining 1.3%yr, but capacity is constrained. This context puts the Board in a challenging position on the narrow path back to target inflation, requiring it "to remain vigilant to upside risks to inflation" and "not rule anything in or out" with respect to policy.

Critical to the RBA outlook for the remainder of the year will be forthcoming updates on inflation. As detailed earlier this week, there is likely to be greater-than-usual volatility in headline inflation over the coming twelve months, as various cost-of-living policy initiatives from both federal and state governments lower measured inflation. The RBA Board are likely to 'look through' this volatility in headline inflation and focus on developments in core inflation. Supporting our view for a further deceleration in trimmed mean inflation, to 3.5%yr by Dec-24 and 3.0%yr by Jun-25, is a constructive outlook for many of the risks the RBA Board is currently focused on. That includes the more modest decision on minimum and award wages from the Fair Work Commission, the significant moderation in unit labour costs growth to date, and the ongoing improvement in labour productivity.

Overall, we view the Board's language as striking a delicate balance. Rate cuts are unlikely to be delivered until late in the year, November being our forecast for the first move, with policy relief ensuing at a measured pace thereafter – 25bp per quarter, taking the cash rate to 3.10% by Q4 2025. Should stickiness in price pressures persist, the risk that policy relief will be pushed back will grow.

Offshore, the Bank of England kept rates steady at 5.25% in a 7-2 vote, but gave their first hint of a near-term rate cut. On the whole, economic conditions were viewed as consistent with progress being made, with a number of those who voted for no change noting that their decisions were "finely balanced". The decision came a day after the release of the May CPI which, on a headline basis, came in at target — 2%yr. However, core inflation rose 3.5%yr while services remained sticky at 5.7%yr. Helpfully, inflation's breadth is narrowing — 59% of the basket was running above the 2% target in May compared to 64% in April. The BoE's analysis also suggests price setting behaviour in the services sector should continue to ease, albeit from a still elevated level.

The UK labour market has been hard to gauge given data quality issues, but the Decision Maker Panel survey implies wage and inflation expectations are decelerating, helping to balance risks to the inflation outlook. Inflation is expected to print just above 2%yr through the second half of 2024 as energy subsidies cycle out. For the BoE to feel confident CPI will sustainably return to target thereafter, further progress on underlying services inflation is required along with easing wage pressures. It is important to recognise that one cut will not take policy from contractionary to neutral, and so we are most likely to see cutting commence before the 2.0%yr target is sustainably attained. The August meeting is best considered live, particularly as revised forecasts will be received by the MPC at that meeting. As in other key jurisdictions, the coming rate cutting cycle for the UK will be measured in timing and scale, with each step determined by incoming data.

Last Friday, the Bank of Japan left policy rates unchanged, but noted they would reduce bond purchases with a detailed plan to be outlined at their July meeting. Commentary around the outlook for the economy remains unchanged — real wage growth is expected to sustainably support demand and prices, leading to at-target inflation into the medium term. Remaining upbeat but patient will improve the chances of this expectation becoming reality. Also supportive is the weak Yen, as discussed in our note. However, meaningful and persistent increases in real wages and investment are necessary to justify policy normalisation.

Elsewhere in Asia, Chinese partial data remained mixed in May. Authorities belief that downside risks are being neutralised by policy was challenged by the data, the price of new and used homes declining by 0.7% and 1.0% respectively in May. Investment in the sector also remained 10% lower year-to-date. Consumer spending is best considered resilient (but certainly not strong or strengthening), retail sales up 4.1% year-to-date in May, the same as April. Fixed asset investment continued at a circa 4% pace year-to-date as growth in property investment remained deeply negative and high-tech manufacturing investment growth slowed to a robust but sustainable pace after the rapid gains of recent years. Highlighting the benefit to China from trade, particularly with Asia, industrial production continued to grow around 6% year-to-date.

Finally to the US. FOMC speakers this week again emphasised the prudence of waiting for further progress with respect to inflation's return to target. That said, it was evident in their remarks that this view was predicated on US growth remaining above trend and no further slippage in the labour market. Data out this week instead highlighted the downside risks for activity. Retail sales again surprised to the downside in May, +0.1%, and April was revised down from flat to -0.2%. Both headline and control group sales point to goods spending being essentially unchanged year-to-date. Despite still robust momentum in services spending, total consumption growth looks to have slipped to a below-trend pace in Q2. Forward looking housing data was also very week in May, with starts now 20% lower than a year ago and permits down 9%yr. Initial claims meanwhile continues to indicate little-to-no job shedding, but all measures of labour demand indicate it is softening, to varying degrees. As we continue to highlight, the FOMC need to be mindful of the evolution of risks that the US faces. This will be as true a year from now as it is today.

Traders upped bets for a Bank of England rate cut in August, helping to underpin a pre-election rally for UK stocks and government bonds even though the central bank left rates on hold at a 16-year high on Thursday.

After the BoE delivered its widely expected decision it hinted that it was edging closer to cuts, prompting money markets to place a 44% probability on a move in August, up from around 32% a day earlier. They priced in a 90% chance of a September cut.

Wednesday's data showing UK inflation has dropped to the BoE's 2% target have encouraged those bets.

Investors now widely see rate cuts boosting the UK economy alongside a predicted landslide in the July 4 general election for the opposition Labour Party, which claims it can rebuild growth and run the country's debt-laden finances cautiously.

That's a turnaround for UK markets scarred by the 2016 Brexit vote and former Conservative Prime Minister Liz Truss' under-funded 2022 mini-Budget.

"Rate cuts are definitely coming and we have a stable outlook for government for the next few years," Morningstar European strategist Michael Field said.

James Briggs, a portfolio manager at Janus Henderson, said he had a "relatively upbeat" stance towards UK stocks, corporate credit and government bonds, known as gilts.

He said UK equity and credit valuations did not yet reflect the economy's improving prospects and that gilts would benefit because "that tail risk of unorthodox fiscal policy is off the table."

London's FTSE 100 share index was steady just below record highs hit in May on Thursday. Sterling slipped 0.2% to around 84.58 percent per euro, but held near its strongest levels since 2022.

Two-year gilt yields dropped to their lowest since March after the BoE's decision, LSEG data showed.

UK bonds, which have outperformed U.S. and euro zone government bonds, this month, rallied as the BoE said that the outlook for rate cuts was "finely balanced."

Pictet Asset Management senior economist Nikolay Markov was negative on gilts because he suspected Labour, which has a long held image as a tax-and-spend party, might prioritise public spending over keeping state borrowing under control.

"The public finances are not in good shape," Markov said, adding that potential moves by Labour to stimulate the economy would be inflationary.

Economists polled by Reuters expect the UK economy to grow by 0.7% this year, in an upgrade to earlier forecasts that had placed Britain at the bottom of the league table for predicted growth among advanced economies in 2024.

Becky Qin, multi-asset portfolio manager at Fidelity International, said she would keep a neutral stance on UK stocks until she saw further signs of sustainable economic growth.

"Inflation data is also not as good as the BoE probably hoped for," she said, referencing UK services sector inflation that stayed stubbornly high at 5.7% in May.

While UK markets are rallying, there are few signs as yet that they are picking up long-term support.

Tracker funds that offer low-cost exposure to UK equity indices have pulled in new money during three of the last four weeks since Prime Minister Rishi Sunak called the election, data from Lipper Global shows.

Actively managed UK stock funds, which are a longer term commitment because they charge higher fees and promise superior returns over time, have suffered outflows in recent weeks in a trend that has persisted for years.

Janus' Briggs said a recent spate of takeovers of UK-listed companies could prompt investors to question if they were missing out on bargain valuations.

Overall, the mood among investors towards the UK was buoyant as rate cut hopes added to the pre-election buzz.

Yvan Mamalet, senior market strategist at SG Kleinwort Hambros, said his firm was bullish on UK stocks and gilts, although he expected rate cuts to pressure sterling.

And Newton Investment Management fixed income portfolio manager Carl Shepherd said he favoured long-term gilts.

"There are idiosyncratic risks in the UK and there is that sticky services inflation, but I think (once we) get the election out of the way, there’d be hopefully a period of more stability."

While inflation figures usually generate a news story in their own right, last month's figures led to the biggest news line of them all.

Rishi Sunak's surprise announcement that he would hold a snap election on 4 July came hours after April's inflation figures were announced. They were widely reported to have heavily influenced his decision to take the country to the polls.

On Wednesday, there was more good news for the government as UK inflation fell to 2% in May, returning to the official target rate for the first time in nearly three years.

The inflation figures were the one of the last significant economic indicators due for release before voting day. But inflation alone – although important – is not the only measure that economists look at.

So with James Carville's immortal 1992 soundbite ("The economy, stupid") still echoing in our ears, we give you the latest in our data series on how 14 years of Conservative party rule has changed Britain – this time on the economy.

If one phrase sums up how Britain suffered in the years after the Covid pandemic, it is "cost of living crisis".

A combination of the pandemic and the war in Ukraine sent prices soaring, most notably for food, energy and heating.

Inflation peaked in October 2022 at 11.1%. It has fallen ever since, with a few bumps in the road, helping Rishi Sunak meet his pledge to halve inflation during 2023.

Yet food prices remain 20% above the level seen in July 2021 and family budgets remain stretched.

By way of demonstration, let's look at the cost of a family staple: spaghetti bolognese, using the prices of individual items as per the ONS basket of goods.

Using this measure, we can compare what it would have cost to make a spaghetti bolognese for a family of four six years ago: £8.44 in May 2018.

Food prices peaked later than general inflation. In June of last year, the ingredients which make up a spag bol hit at £10.35 before falling back to £10.15 last month.

Interest rates were high in the 1980s when the price of property was low. Rates fell in the 00s as home prices soared. Then came the 2008 financial crash and the cost of borrowing tumbled to almost zero. Rising inflation during 2021 triggered a round of interest rate increases to 5.25%.

Now we have the worst of all worlds – high interest rates and stratospheric house prices.

After the latest fall in inflation, the betting is that Bank of England officials may start to cut interest rates in September and possibly again in December to 4.75%.

Other factors prompting action by the central bank are figures showing that the economy is growing slowly and that unemployment is rising – both legacies of Conservative governments that, over 14 years, favoured austerity over investment.

Lower interest rates will give the economy a much-needed lift, but it's not a done deal. There are risks from the global economy and from domestic price pressures. A widening of the Middle East conflict could send oil prices higher, while defeat for Ukraine could spark a return to higher food and energy bills.

Britain's borrowing has declined sharply as a proportion of national income, or gross domestic product (GDP), from the first half of the last century, when it rocketed to pay for the costs of two world wars. In the 1990s, then chancellor Gordon Brown ran surplus budgets – which meant the government spent less than it received in tax – and reduced the overall level of debt to less than 50% of GDP. It rebounded after the 2008 financial crash to more than 100% and is now 97%, according to the latest official figures.

Successive Conservative-led governments failed to bring down the ratio to anywhere near the pre-crash levels.

Economists are divided about how much borrowing is too much. Labour is concerned about criticism that it will be profligate in government and has pledged to maintain a Tory budget rule that forces the chancellor to cut the debt-to-GDP ratio in the final year of a five-year forecast.

France has a debt-to-GDP ratio of 114% and, without spending cuts of €10bn, is heading for 117%. Credit ratings agencies, which monitor debt levels, have judged that 117% would be too high and downgraded France, in effect warning investors that it is more likely the country could default on debt payments. Not long after the latest downgrade, Emmanuel Macron called a snap election in France.

When an economy contracts for two consecutive quarters, it is considered to be in recession. Some economists take a stricter view. The National Institute of Economic and Social Research says there needs to be a contraction over a full year, which rules out the downturn in 2023, when the economy contracted between June and December, but grew slightly over the entire year.

There was a huge contraction in the Covid-affected spring of 2020, but the economic shutdown was on the government's orders and there were lots of subsidies around to help businesses and households. The government also softened the blow to incomes during the 2009 recession. So it is not since the 1990 contraction that people have been left to survive without much state intervention. Then, tens of thousands lost their homes and many businesses went bust.

Recessions are always not far away. They tend to arrive when businesses have run out of road after borrowing heavily to grow. They cannot keep repeating the same trick, especially when interest rates climb higher. But many other factors can intervene, too.

The last 14 years have shown that shocks can come from left field and the government needs to be better prepared than it was in 2020.

There is a group of economists who believe recessions relate to overblown property prices and arrive in 18-year cycles. They have been right about at least the last two. If we discount the 2023 and 2020 contractions as pandemic-induced, the next biggie will arrive in 2026.

Crucially, while prices shot up, wages remained stagnant, leading to record numbers of people relying on food banks. The Trussell Trust, which is the UK's largest food bank charity, has seen its business grow rapidly. From the number of food banks to the number of emergency parcels, they provide a sad record of the UK's growing number of impoverished households.

Many of the people who visit food banks are in work, but their low wages cannot stretch to cover bills. Not only have consumer prices risen, but so have taxes, rent and mortgages.

Council tax has been on a rollercoaster ride since 2010. First it was frozen, then from 2016 increased by 5% a year, before a social care surcharge in 2020 limited the increase to 3% (in total, bills still increased by 5%).

Across all taxes, the overall level is heading to its highest since the second world war under current government plans. Mortgage and rent bills have also soared. The latest official figures show that rent inflation is at a record level, while those who need to remortgage can face a doubling or trebling of their monthly interest payments.

Figures from the homelessness charity Crisis show that the number of people sleeping rough is now 61% higher than it was 10 years ago and 120% higher than when data collection began in 2010.

We are living in the age of inflation. Although inflation has existed in one form or another since the beginning of the monetary economy, no economic system has ever institutionalized and perpetuated the devaluation of money to the same extent as the system we live in today.

According to the official inflation figures from the United States Bureau of Labor Statistics, one U.S. dollar in August 1971 had the same purchasing power as $7.66 in March 2024. Conversely, the purchasing power of one U.S. dollar today is equivalent to that of just 13 cents in 1971, when President Richard Nixon abolished the last remnants of a gold backing of the U.S. dollar within the Bretton Woods system.

What do these figures mean? For more than half a century, the U.S. dollar has depreciated by an average of almost 4 percent per year relative to the usual consumer goods an American household buys. These are the official inflation figures, which do not look beyond private consumption. However, since at least the 1980s, there has also been disproportionately high asset price inflation in real estate, stocks and many other long-term assets, such as precious metals. The U.S. dollar price for gold, for example, has increased by an average annual rate of 6.3 percent over the past 30 years.

The situation is similar in Europe. Since the introduction of the euro in 1999, average consumer price inflation in the eurozone has hovered around 2 percent per year. That means that the European Central Bank has hit its stated monetary policy target, if only on average. At the same time, real estate and stock markets have been heavily inflated over the entire period, a fact that is not taken into account in the official inflation statistics. Real estate prices have almost tripled in France and more than doubled in Germany over the last 25 years. Share prices are constantly spiking to new record highs and appear to be decoupled from the real economy. All these signs tell us that we are indeed living in the age of inflation.

Listing the long-term consequences of persistent inflation could fill entire volumes. But among these consequences, three seem particularly relevant.

Economists agree that we can stimulate the economy through inflation in the short term. However, what seems reasonable from a near-term perspective can sometimes cause considerable damage in the long term. We all know examples of this truism, but not everyone realizes that it also applies to inflation. Within the specifics of a given economy, a rise in inflation can almost always stimulate additional economic activity.

Lowering interest rates and expanding the money supply increase the volumes of credit, investment and consumption. All of this accelerates the economic process. However, persistent inflation over the long term prompts changes in the underlying economic structure. Investors who create the basis for economic growth will adapt their behavior to the new circumstances. In an inflationary economy, chaotic conditions often prevail.

Productive investments in building up the real capital stock are therefore associated with increased risks. However, one can be confident that prices will rise on average, and the prices of existing assets, such as real estate, will rise more than proportionately. This means that from an investor's perspective, it is becoming much more sensible to purchase existing assets instead of investing in the production of new ones.

Productive investments are increasingly being crowded out by speculative investments aimed at reaping profit from increasing prices. If productive investments fail to materialize, an economy can no longer grow in real terms. It then lives off its existing substance, consuming capital instead of building it.

The growing demand for long-term assets that protect against inflation can be seen as a sort of self-defense mechanism. When inflation persists over the long term, a cultural and social learning process sets in.

The simplest form of saving is to put some money aside. It has also been, for a long time, a common form of saving in low-income households. The more people understand that this strategy no longer works, the more society will be caught up in a maelstrom of asset price inflation. More and more people are buying property, for example, not to live in or rent out, but to park their savings and protect them from erosion. That explains the high vacancy rates in cities such as London, Paris and New York City.

The ever-increasing demand for long-term assets means that asset prices tend to rise faster and faster, and people's incomes are lagging behind. The wealthy classes are moving further away from the less affluent classes. Steady inflation, even if it is moderate on average, is driving a wedge between rich and poor.

For average-income earners without existing assets, social advancement is becoming increasingly difficult in the face of disproportionately high asset price inflation. It is true that an inflationary economy also offers many opportunities to some individuals. A have-not can quickly achieve great wealth if he or she only bets on the right horse. But this is the exception, not the rule. Inflation does not benefit the majority. On the contrary, those lucky individuals achieve great wealth precisely because the masses lose out in the process of inflation.

This tendency has serious consequences for a society's cohesion. In an inflationary economy, individuals can become rich at the expense of others without producing anything of value to others. It is often impossible to tell how much of a given fortune is the result of productive activity and how much is the result of inflationary redistribution.

Many people intuitively sense the unfairness of this situation, which fuels envy, resentment and annoyance. Over time, these feelings tend to be directed against all the haves, including those who gain most of their wealth through productive activity. In this way, self-destructive emotions are generated and accumulated in society and manifest themselves through politics. If sufficiently many people lose trust in the economic system they live in, the democratic process will sooner or later dismantle that system.

Long-touted changes to China's tax system will focus on allowing local governments to retain more fiscal revenues, say policy advisers, widely seen by markets as an important step towards removing an immediate threat to financial stability.

Measures that redistribute income from central authorities to municipalities, curbing an addiction to land sales laid bare by China's property crisis, will top the agenda of a leadership gathering in July, known as the third plenum, they said.

"Pressure is high to push reforms to bolster local government revenue after the end of the land finance phase," said one of four policy advisers who spoke to Reuters. Three of them requested anonymity due to the sensitivity of the matter.

The plenum is set to discuss the biggest changes to China's fiscal system in three decades, with policymakers hoping to ease concerns over a $13 trillion-and-growing local government debt pile that poses risks to financial institutions and economic growth.

Details of the plans have been reported by Chinese media.

In 2023, local governments' own fiscal revenues accounted for 54% of the nation's total, but their expenditures accounted for 86%, data from the finance ministry showed.

This imbalance stems from the fiscal reforms of 1994, when China aimed to limit localities' capacity to independently raise money, following a surge in local spending and inflation in the late 1980s.

But local governments got around those limitations by creating off-budget financing vehicles - which Beijing is cracking down on - and by auctioning land for residential development, fuelling a giant housing bubble.

Land sales' contribution to local budgets rose from a fifth to almost a third in the decade leading up to 2021, when China entered a severe property market downturn. It is no longer a reliable cash cow: such incomes shrank to 5.8 trillion yuan ($780 billion) in 2023 from a 2021 peak of 8.7 trillion.

Chinese leaders flagged plans for fiscal reforms at an annual meeting in December, without offering details.

Policy advisers said the main changes are likely to revolve around how much revenue local governments retain, rather than adding or hiking taxes.

Municipalities currently get half of value-added tax revenue and 40% of personal income tax, while the central government gets most corporate income tax and all of what China calls a consumption tax, currently levied on producers and importers.

The advisers did not give figures on the future division of tax income between central and local governments.

But they said local governments may be allowed to keep most of the consumption tax - which accounts for almost a tenth of China's total tax revenues - and more of the value-added tax - which accounts for more than a third.

Proposals also include Beijing taking over growing commitments on pensions and healthcare as the population ages.

The aim is to stop municipal debt accumulation by balancing revenues with expenditure, the advisers said.

"Local governments' spending should be based on their fiscal capacity," said a second adviser. "A mature society no longer needs to find special ways to build more infrastructure."

The fiscal overhaul will likely stop short of addressing other structural imbalances, such as an over-reliance on investment and exports and weak household consumption, analysts say.

China taxes capital gains at 20%. While subject to many exemptions, it is also lower than the 30% in India and 37% in the United States.

But investment yields dwindling returns, as evidenced by debt significantly outgrowing China's gross domestic product (GDP) for the past 15 years.

Therefore, tax revenue is also low. The International Monetary Fund calculates China's tax-to-GDP ratio at 14%, versus a 23% average for the Group of Seven developed economies.

This makes social spending difficult to fund without raising taxes on capital or businesses. Taxing households more is a difficult proposition as China's upper personal income tax band is among the world's steepest, at 45%.

The difference between how capital and labour are taxed encourages low wages and high investment.

But reversing that runs counter to Beijing's strategic goals of global industrial and technological leadership, which channel resources to factories and science laboratories, rather than consumers.

"Tax reforms should support industrial development," said policy adviser Jia Kang, founding president of the China Academy of New Supply-Side Economics.

China still needed to "grow the pie," he added.

Still, one seed for a longer-term tilt towards consumption may yet be planted at the plenum.

Chinese media said policymakers may shift the point of charging the consumption tax to wholesalers and retailers.

This tax currently only applies to 15 types of goods, from alcohol and tobacco, to luxury cars, jewellery and yachts. Domestic demand for these items has limited impact on China's productivity.

Goldman Sachs analysts say charging consumers shifts incentives for local officials from growing their manufacturing base to growing their consumer base.

But that would require a broader application of the tax at a time when consumption remains weak and the economy is fragile.

"Although there are compelling reasons for increasing the role of consumption tax," the analysts wrote, "implementation is likely to be incremental."

Similar constraints apply to adding a property tax.

China had long intended to introduce the levy to reduce the regressiveness of its tax regime, but the property crisis derailed those plans.

Jia said Beijing won't kick the sector while it's down: "We can move only at an appropriate opportunity."

Although the Fed’s updated dot plot pointed to only one quarter-point reduction by the end of the year, the softer-than-expected CPI numbers a few hours ahead of last week’s decision did not convince market participants about officials’ intentions. The weaker-than-expected retail sales numbers this week corroborated that view.

Indeed, according to Fed funds futures, investors are penciling in around 50bps worth of reductions by the end of the year, assigning around a 70% probability for the first cut to be delivered in September.

With all that in mind, the main item on dollar traders’ agenda next week may be the core PCE price index for May due out on Friday, which is accompanied by the personal income and spending data for the same month. The final GDP print for Q1 is also set to be released the day before, but given that Q2 is almost over, any minor deviations from the 2nd estimate are likely to pass unnoticed.

As for the core PCE index, the slide in the core CPI for the month poses some downside risks. There may be downside risks to spending as well, derived by the weakness in retail sales, although income may be poised to improve, something suggested by the better-than-expected average hourly earnings.

Overall, another set of economic data pointing to cooling consumer demand may further solidify expectations of two quarter-point cuts by the Fed, and perhaps increase the probability for initiating the process in September. This could prove negative for the US dollar, especially against its Australian counterpart. Remember that this week, the RBA maintained its neutral stance, while Governor Bullock revealed that they discussed the option of raising rates.

In Japan, the Summary of Opinions from last week’s BoJ decision will be released on Monday during the Asian session, while on Friday, the Tokyo CPIs for June are coming out.

At last week’s meeting, BoJ officials decided to keep interest rates unchanged and said that they would start trimming their bond purchases, but that they will announce a detailed plan next month. What’s more, Governor Ueda said that he is not ruling out interest rates rising in July.

Still, the yen fell, perhaps as some market participants were expecting more concrete signals about a July hike and a potential slowdown in bond purchases. This is also evident by market pricing, where the probability of a 10bps hike in July has dropped significantly, to around 27%. Ahead of the decision that chance was more than 65%.

All this suggests that yen traders will dig into the summary for clearer hints on how likely a July hike is. If they are left once again disappointed, the yen is likely to extend its slide and perhaps take another hit if the Tokyo CPIs pull back below the Bank’s 2% objective again. Having said all that though, with dollar/yen already trading near the 159.00 zone, further advances, closer to the round number of 160.00, may significantly increase the risk for another intervention episode by Japanese authorities, although officials have been silent until now.

Canada’s CPI numbers are also on next week’s agenda. They are due out on Tuesday. Earlier this month, the BoC became the second central bank in the G10 group to cut interest rates by 25bps, with Governor Macklem signaling that it would be “reasonable to expect further cuts” if inflation continues to cool.

Since then, the only data set worth mentioning was the employment report for May, which came in slightly better than expected. And that was not enough to deter investors from expecting another rate reduction in July. The probability of such a move currently rests at around 62% and should next week’s data reveal that inflation continued its downward trajectory, it could go higher. This could weigh on the Canadian dollar.

Australia releases its monthly CPI prints for May. Inflation in Australia has been proving stickier than other major economies, with RBA policymakers discussing the possibility of hiking rates at Tuesday’s gathering. Ergo, if the CPI confirms the stickiness in price pressures, traders will continue seeing the RBA as more hawkish than other major central banks, something that may keep the aussie supported.