The Reserve Bank of Australia surprised markets at its meeting in June with a 25 bps rate hike. Citing strong labour and inflation data the RBA needed to act to keep inflation under control and drag it down from its 6.6% y/y core reading and 7% y/y headline reading. Furthermore, with Australian labour data coming in very strong on June 15th, exceeding maximum expectations, and adding 75K jobs vs 15k forecast, does this set the scene for even more RBA rate hikes to come?

In the UK the situation for the Bank of England is slightly different. Yes, inflation is high at 6.8% y/y for the core. However, the Bank of England will risk stifling growth if it has to hike rates aggressively from here. That is GBP negative and we saw that reaction with the bond/GBP reaction to the mini-budget. So, in a sign of distress, high UK inflation could actually result in the GBP losing value. This is a countercyclical relationship that happens when markets fear stagflation. So, will the GBPAUD lose value here?

Major Trade Risks: The major risk here would be if inflation rapidly cools in the UK or in Australia. Labour and inflation data will be crucially important for both the RBA and the BoE and is a major risk to the policy outlook. Also, the BoE meets this week, so that is an upcoming event risk for Thursday.