Aussie Inflation Hits Six Year Highs
AUD
The AUD has see-sawed up and down overnight but trades higher on open against most majors with yesterday's strong inflation data the likely driver of the upward trajectory. Yesterday's numbers showed Australian Core Inflation sped to its fastest annual pace since 2015 in the September quarter as price increases became more broad-based, a major surprise that led markets to wager heavily on earlier hikes in interest rates from the RBA. The annual pace of inflation accelerated to 2.1%, well above the 1.8% expected and putting it back within the RBA's 2% to 3% target range for the first time in six years. Data from the ABS showed the headline consumer price index (CPI) rose 0.8% in Q3 and 3.0% for the year as expected. However, the trimmed mean measure of core inflation favoured by the Reserve Bank of Australia (RBA) rose by 0.7% in the quarter, above forecasts of 0.5%. The data only adds pressure on the RBA to further reduce its monetary stimulus in the near future. What would have dragged back the AUD were commodities which were resoundingly lower, with Iron Ore down -1.6% whilst Copper was down -2.6%. Asian Equities were also mixed with the ASX putting on just +0.1%, whereas the Shanghai Composite was down -0.1%. Looking to the day ahead, there's little in the way of local data however eyes will be firmly on the ECB's monthly monetary policy meeting tonight (see below).
USD
The AUDUSD finding some support in the 0.75s as it trades at 0.7519 this morning. The AUD which was backed by the upbeat inflation data, had its gains trimmed against the USD as global risk sentiment and some improved manufacturing orders data from the US kept Aussie gains in-check. A slight deterioration in the global risk sentiment – as depicted by a pullback in the equity markets, the Dow Jones losing -0.6%, and the S&P 500 losing -0.2%, benefitted the safe-haven US dollar. US Durable Goods Orders for September declined by -0.4% down from a previous 1.3% gain, though better than expectations of a 1.1% fall. Senate Democrats announced details of their proposed tax on American billionaires to help fund President Biden’s social spending proposals. The deal would only affect 700 of the richest Americans, and would require them to pay taxes annually on the gain of their publicly traded assets. Little reaction from currency markets. Tonight, there’ll be some Unemployment data and GDP data as the focus of attention.
EUR
The AUDEUR continuing its stellar run north at it trades at 0.6478 at time of writing. European Equity markets all closed in the red but losses were limited to -0.3% by the FTSE and the DAX. Inflationary pressures still the main driver of direction in Europe, with German Import Prices increasing by 17.7% in September 2021 compared with the corresponding month of the preceding year. This has been the highest year-on-year change since August 1981 and echoes the current inflationary rhetoric in Europe at the moment. All eyes are on the ECB’s monetary policy decision later tonight. The meetings will likely centre around whether the recent upside pressure to prices will still prove more, or less transitory and crucially whether it will soon be necessary to further scale back the bank’s emergency policy tools. Expectations remain that President Christine Lagarde will be quite neutral, possibly with a further more explicit acknowledgement that higher inflation could be more persistent in 2022.
GBP
The AUDGBP making larger strides upwards, trading at 0.5469 this morning. British Finance Minister delivered the UK’s Annual Budget, in an upbeat Budget speech, Sunak said the UK economy had not been hit as hard by the Covid pandemic as expected. Sunak states his plans were focused on the "post-Covid" era, and would “pave the way for an economy of higher wages, higher skills, and rising productivity". Furthermore, the UK’s economy contracted almost 10% in 2020, but it is set to grow 6.5% by the end of the year, according to the Office for Budget Responsibility (OBR). Also, the OBR expects inflation to average 4%, double of the Bank of England’s target. Currency markets largely ignored the news with European Interest Rates of primary focus tonight.
NZD
The AUDNZD also trading just marginally higher after some earlier gains were written off in later trade, currently sitting at 1.0485. New Zealand Trade Balance shrank from the previous figure of $-2139M to $-2171M in September to mark the all-time low MoM figures. Statistics NZ says September was the third record high month in a row for imports, with the figure reaching $6.6 billion - up 30% on the same month a year ago. September imports of $6.6 billion outstripped exports of $4.4 billion by some $2.2 billion. The annual trade balance for the year ended September 2021 was a deficit of $4.1 billion. "These three consecutive record months for imports are a reflection of both the higher prices New Zealanders are paying for consumer goods, and strong demand for capital goods such as machinery used in construction, and passenger vehicles," Stats NZ's international trade manager Alasdair Allen said.