The inflation debate and decoupling theory were quietly shelved as global growth fears resumed centre stage. Commodities prices continued to fall and currency pairs left trading ranges established months ago as the forex trading market reset relative values.

As expected, the RBA left interest rates on hold at 7.25%; however, the Governor’s statement was much more dovish than market expectation and set the stage for a rate cut as early as September. The Australian economy slowed much more sharply than anticipated, with home loans to owner-occupiers down −3.7% in June, its fifth consecutive contraction and a −27% cumulative decline. House prices fell −0.3% and real retail sales dropped −0.6% during the second quarter. July unemployment remains at 4.3%, upwardly revised in June, and the economy added 10.9k jobs, confirming the deceleration in trend growth. The forex trading market moved quickly to price in the RBA’s anticipated easing cycle. AUD/USD has lost approximately 10% since 15 July’s high of 0.9848, closing the week at 0.8891 and falling below its 200-period moving average on daily charts.

Also as expected, the FOMC left rates on hold at 2.00% and issued a balanced statement between downside risks to growth and inflationary pressures. The July non-manufacturing PMI reading rose slightly to 49.5, still below the break-even 50 level. June wholesale trade rose 2.8% m/m and 17% y/y, with wholesale inventories rising 1.1% m/m and 9.5% y/y, and new orders up 1.7% in the month.

The ECB left rates on hold at 4.25% as expected. President Trichet restated the Eurozone’s inflation worries then added that “downside risks to growth have materialised,” an understatement with even Germany’s GDP expected to print in the red on Thursday 14 August. If commodities prices continue to fall, inflationary pressures, particularly for food and energy, should normalise in the medium term. The forex trading market priced the first rate cut into EUR/USD, which fell 3.6% in the week and 2.08% on Friday 8 August, breaking through the neckline at 1.5285 of a classic double top formation best seen on weekly charts.

The BoE also left rates on hold at 5.00%. U.K. house prices fell −1.7% in July, a smaller drop than those registered in June and May, possibly signalling a deceleration in the downward trend. GBP/USD punched through strong support at 1.9359, respected since mid-March, to close at 1.9198, and EUR/GBP broke beneath its established trading range between 0.8030 and 0.7840, entered in early May, to close at 0.7820.

The Canadian economy shed 55k jobs in July; however, the unemployment rate lowered to 6.1% as students left the labour force. USD/CAD rose 1.4% on Friday 8 August, 3.9% for the week, and 6.4% to date this year, exiting its established trading range of +/− three cents of parity on Monday and climbing through the week to close at 1.0671. AUD/CAD attempted to rally on Monday and briefly re-entered its price channel but fell back beneath it on Tuesday, closing the week at 0.9488.

Japanese 2Q2008 GDP prints Wednesday 13 August and is widely expected to illustrate a sharp economic slowing, red ink not ruled out. USD/JPY crossed four major resistance levels in the week to close at 110.19, a 250 pip gain, and AUD/JPY remained decoupled from the carry trade, spiking beneath the 200-period moving average to close at 97.98.