Daily Market Commentary 3rd August 2022

Markets turned sharply negative overnight, following the visit of US House Speaker Pelosi to Taiwan, against the explicit warnings of China. Political tensions are moving to critical levels, as the world awaits the response from China. This has spilled over into the markets, with equities diving as uncertainty rises. US Bond Yields continue to reflect the US recession, while the US Dollar jumped on the Pelosi/China news. The EUR fell back to trade 1.0170, while the Yen reversed recent gains, approaching 133.00.

The RBA raised rates a further 50 basis points, in line with projection, with more to follow. The RBA recognise the inflationary pressures and committed to the strategy, to combat rampant inflation. They need to address the vastly expanded balance sheet, to seriously address inflation, while the heart of the problem lies in deficit spending. The AUD lost ground and these losses accelerated overnight, following the Pelosi/China news, crashing back to 0.6910, while the NZD fell back to 0.6270. Australia and NZ fortunes are deeply tied to the China/US relationship and were this crises to evolve, they would be directly and seriously impacted.