Is Improved US Inflation Data a Flash in the Pan?

AUD

The AUD had a mixed performance during the overnight session, with markets still remaining relatively subdued. US Equities had a modestly decent performance overnight, which lent a helping hand to the AUD. US 10 Year Bond Yields dropped an even further 5.5bps, returning to 1.435%. Movement south in US 10 Year Bond Yields often helps the AUD, however today the upside gain seemed minimal. The VIX, which is an index that measures the level of risk and fear within the market, dropped -9.9% overnight. The AUD commonly thrives in a market with positive risk sentiment, as such the movement could have also aided the AUD. Commodities had some mixed results during the overnight session, with Iron Ore coming in at 0.9% and copper dropping -0.9%. A strong performance from commodities also underpinning the AUD, a supportive influence to keep an eye on as we get into the back end of the year. No significant data is scheduled for today, however markets are in waiting to see what comes from the G7 Summit this year, with great emphasis being placed on China (which is not a member of the G7).

USD

The AUD/USD made some upside gain during the overnight session, currently trading in at a rate of 0.7753 at time of writing. US Core CPI data came in better than expected, with Core monthly and Yearly CPI coming in at 0.7% (vs exp 0.5%) and 3.8% (vs exp 3.5%), however this failed to aid the USD across the board with markets buying in to the Fed narrative that inflationary pressures are transitory. US weekly Jobless Claims improved although were slightly worse than expected, with claims at 376K (vs exp 370K). Despite the higher than expected US inflation data, US Equities still managed to move into the green overnight, with the S&P500 and NASDAQ coming in at 0.5% and 0.7% respectively. US Federal Budget Balance also came in worse than expected, with expenditure in a deficit of -132.0bn (vs exp -245.0bn). The USD looking to finish the week off on a quieter note, with Prelim UoM Consumer Sentiment being released later tonight. Due to its sensitivity to risk sentiment and consumer confidence, anything wildly different than expectations could cause movement for the AUD.

EUR

The AUD/EUR made some significant gains during the overnight session, currently trading in at a rate of 0.6367 at time of writing. The ECB announced last night that there wouldn’t be any significant change in their policy settings, with the Deposit Facility Rate for banks remaining at -0.5%, and the PEPP (Pandemic Emergency Purchase Program) still continuing to operate at a higher pace than during the first couple months of the year. Europe also had some mixed Monthly Industrial Production data, with France printing at -0.1% (vs exp 0.5%), and Italy beating expectations at 1.8% (vs exp 0.3%). As such, there wasn’t a lot of support for the EUR overnight, giving room for the AUD to make some slight gains. Lagarde opened the ECB press conference by injecting some optimism into the market, stating that the EU will continue to open up into the second half of 2021, with economic activity increasing, and that they would continue to monitor FX moves and its effect on inflation. As the EU begins to come out of COVID and the ECB begins to reconsider their policy system, there could be some significant market movement. No significant data scheduled for today.

GBP

The AUD/GBP saw some downward movement during the overnight session, currently trading in at a rate of 0.5468 at time of writing. The UK reported that they only have 3 fully vaccinated individuals in hospital as a result of the Delta COVID Variant, with 76% of adults in the UK having at least one shot of vaccines and 52% with two doses. Investors will be watching BoE’s Governor Bailey tonight, as he is due to speak at an event hosted by the Bank for International Settlements, any Hawkish comments could move markets.

NZD

The AUD/NZD trading relatively flat during the overnight session, currently trading in at a rate of 1.07763 at time of writing. Business NZ Manufacturing Index printed at 58.6 early this morning, showing healthy levels of expansion for the Manufacturing sector (anything above 50.0 shows expansion). The NZD looking at a quiet finish to the week, with no significant data scheduled to be released.