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RBA cuts interest rates by 25 basis points, Japan's chief trade negotiator speaks
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Hello everyone, today XM Foreign Exchange will bring you "[XM Group]: The RBA cuts interest rates by 25 basis points, and the chief trade negotiator of Japan speaks out." Hope it will be helpful to you! The original content is as follows:
Asian Handicap Market Review
On Monday, the US dollar index fell sharply during the Asian Handicap and European Handicap periods due to Moody's downgrade of the US credit rating. As of now, the US dollar is quoted at 100.31.
Source: The U.S. Treasury Department does not expect any trade agreement to be announced at the G7 Treasury Secretary meeting this week.
The UK and the EU have reached agreements in multiple areas such as fisheries, defense and security and trade; it is reported that India is discussing a three-part US trade agreement, which is expected to reach a temporary agreement by July.
The US Chamber of eouu.cnmerce's leading indicator monthly rate recorded -1% in April, the largest decline since March 2023.
Atlanta Fed Chairman Bostic reiterated his tendency to cut interest rates only once this year; New York Fed Chairman Williams: The recent economic data is very good, and the keyword of the economy is uncertainty; Federal Reserve Vice Chairman Jefferson: Moody's downgrade of the US rating is a general data processing for formulating policies; Dallas Fed Chairman Logan: The Federal Reserve should consider strengthening mechanisms to prevent money market interest rates from soaring when market pressure occurs.
Putin said Russia is ready to cooperate with Ukraine on the memorandum of peace negotiations. Trump says Russia and Ukraine will start talks immediatelyto achieve a ceasefire. Zelensky was willing to sign a memorandum with Russia to make a ceasefire according to Putin. Kyrgyzstan said that Russian and American leaders intend to arrange face-to-face meetings in the future and have not set up a timetable for the ceasefire of Russia and Ukraine.
At the May 2025 meeting, the RBA decided to lower the cash rate by 25 basis points to 3.85%. This decision is based on the continued decline in inflation into the target range, the increased global economic uncertainty and the eouu.cnplexity of domestic economic growth and employment prospects.
Summary of institutional views
JPMorgan Chase: Tariff impact lowers interest rate spread forecasts, the risk of recession in the United States cools down, but challenges remain
We adjust the interest rate spread forecast at the end of 2025 to 95 basis points (previously 125 basis points), that is, 10 basis points narrowed from the current level. The ideal environment for high-grade credit is: slow economy but positive growth, high yields, stable credit indicators, the Fed entered a channel for interest rate cuts and moderate bond supply. Until a month ago, we thought these conditions were basically met, and our interest rate spread forecast also reflected this, but the subsequent arrival of "Liberation Day" changed the situation. This not only poses a threat to the growth outlook, but also impacts profit expectations in some industries that will be severely affected by extremely high tariffs. By May, as potential tariff rates may ease (although still likely to be well above previous levels), the outlook shifts again, and we lower the probability of a recession forecast to be below 50%.
The U.S. government has lowered some of the strict tariffs imposed on China, reducing the risk of the U.S. economy slipping into recession this year. Nevertheless, the current tariffs still amount to an increase in revenue of approximately $430 billion on U.S. households and businesses, accounting for 1.4% of GDP. We predict that the number of jobs will shrink more moderately in the second half of this year (an estimated monthly decrease of 75,000), and the GDP growth rates of the United States in the second, third and fourth quarters will be 2.0%, 0.0% and 0.5%, respectively. Although the risk of an economic recession is still high, it is currently below 50%. In addition, it is expected that the Federal Reserve will only cut interest rates four times starting in December this year and until the end of the second quarter of 2026. By the end of 2025, the 2-year and 5-year U.S. Treasury yields, overnight financing rate (SOFR) and 10-year U.S. Treasury yields will reach 3.50%, 3.70%, 4.10% and 4.35% respectively. We continue to predict the default rates of high-yield bonds and leveraged loans in 2025 will be 1.50% and 3.25%, respectively. Nevertheless, we believe that credit spreads will further widen against the backdrop of weaker economic outlook. Earlier this week, we lowered the spread forecasts for high-yield bonds and leveraged loans at the end of 2025 to 450 basis points and 550 basis points respectively from the previous 600 basis points and 675 basis points, which means that the total returns of these two types of assets are expected to reach 5-6% and 4-5% respectively in fiscal 2025.
Analyst David Song: Australia and the United States' strong performance may be unsustainable, and interest rate decisions may intensifySelling pressure?
I think the Australian dollar may find it difficult to continue Monday's rally, and the market currently generally expects the RBA to cut interest rates by 25 basis points to 3.85%. Australia and the United States have previously rebounded after hitting the monthly low of 0.6357, ending the continued downward trend of band high and low points since then. However, although trade frictions have cooled a lot after the joint statement of China-US-Geneva Economic and Trade Talks, the progress of negotiations between the two sides has almost stagnated. If the RBA cut interest rates as expected and releases dovish forward-looking guidance, it may intensify the selling pressure between Australia and the United States. But given the "sustainable achievement of inflation targets within a reasonable time remains the top priority of the central bank", policy makers may maintain a gradual interest rate cut.
Daily level chart shows that Australia and the United States may test the December 2024 high of 0.6515 after holding the monthly low of 0.6357. If it can effectively break through the 0.6510-0.6520 resistance zone, the upward target will directly point to 0.6590, and then pave the way to the high of 0.6688 in November 2024. However, if the support area of 0.6370-0.6410 breaks, it may fall back to 0.6357. A fall below 0.6240-0.6290 will open the downward space of 0.6130-0.6140. In extreme cases, the technical support area of 0.5990-0.6040 may be tested.
Mitsubishi UF
Moody's downgraded the US sovereign credit rating this time, although it is the last time that the three major rating agencies have lowered the rating, it may be the most impactful. In recent years, it is very rare for US assets to experience "triple selling". Our analysis of such situations, usually accompanied by at least 15 basis points increase in the yield on 30-year Treasury bonds, often indicates further pressure on the US dollar. The sale of such a scale that occurred in April this year is the first since 2001. Even assuming that the content of the current bill reached by the House of Representatives over the weekend has been eased, it will still lead to a fiscal deficit in the United States far higher than other major developed economies, which may account for between 5% and 7% of GDP. This will significantly increase the risk of a reactionary increase in yields (ultimately squeeze out growth benefits). The main cost of the bill is still to extend the current tax cut policy, so its core purpose is to avoid a significant tax increase impact on economic growth rather than to directly boost growth.
We released a new trading proposal to short the US dollar/JPY last Friday (before Moody's downgrade). As Asian stock markets generally decline, market risk aversion has been higher than expected. The steepening of the US yield curve and the continued doubts in the market's confidence in US assets will strengthen the downward action energy of the US dollar/JPY. Bank of Japan Deputy Governor Shinichi Uchida reiterated today that if the Bank of Japan's economic outlook is realized, the central bank is willing to raise policy interest rates.
Dutch International Bank
The market generally expects the RBA to announce a rate cut today (12:30 noon). Previously, the market had speculated that the rate cut could reach 50 basis points, but given the Sino-US tradeThe conclusion of the agreement and the rate of inflation falling below expectations, and the expectation of a 25 basis point interest rate cut has basically become a consensus. We believe that the RBA will maintain a considerable degree of caution in policy forward guidance, but its overall tone should be more dovish, thereby indirectly strengthening the market's expectations that there will be two additional interest rate cuts after this rate cut and by 2025. Against the backdrop of negative factors in the United States and improved risk appetite, we still believe that the Australian dollar/USD has upward potential. We expect it to return to the 0.6500 level and do not believe that the RBA's rate cut will hinder the process.
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