Inflation Broadening Across US Economy

AUD

The AUD is trading lower against most major currency pairs this morning. Asian Equities were once again mixed on Tuesday with the Nikkei up 0.7% while the Shanghai Comp took a significant loss of -1.4%. The ASX was up 0.2% for the session, following the RBA Governor Lowe’s statement that a rate hike should not be priced in before 2024. Commodities were also down with Iron Ore losing -1.5% and Copper down -1.2% while Silver and Gold had next-to-no movement. The AUD struggled to capitalise on the previous day’s gains, instead met with fresh downward pressure after the RBA Gov Phillip Lowe downplayed rate hike speculations. In a speech to the Anika Foundation, Lowe argued that it will take time to drive faster wages growth and reiterated that he doesn’t expect a lift-off before 2024 and highlighted the downside risks associated with the recent spike in new cases infected with the Delta variant of the coronavirus. There’s a flurry of local data on the docket today with Chinese Retail Sales and Employment data due at 12PM, however tomorrow's local Unemployment Report will be the highlight of the week.

USD

The AUDUSD seesawed in the late trade to as high as 0.7370 before coming back to trade at 0.7319 at the time of writing. US equity markets softened following weaker than expected US inflation data (see below) the Dow was down -0.8%, the S&P down -0.6% and the Nasdaq followed suit down -0.4%. US 10-Year treasury yields were a steady 1.28% and Brent crude was up 0.9%, as another hurricane moved through a key US hub following Ida weakening local output. In early data, US CPI for August rose 0.3% MoM to fall short of expectations of 0.4% and rose 5.3% YoY as expected. Core measures were weaker than expected by 0.2%, coming in at 0.1% MoM and 4.0% YoY. Despite these weaker than expected headline numbers, the median measure of CPI which measures the breadth of price increases saw a 0.34% increase which was the strongest monthly increase since 2007 and offers evidence of a broadening of inflation across the economy which is likely to please policymakers. A taper announcement now looking likely in November. Little in the way of local data this evening with today’s Chinese data to be in focus for markets.

EUR

The AUDEUR remained subdued overnight, trading as low as 0.6192 before regaining the 0.62 handle this morning. European Equities were mixed with the DAX posting modest gains of 0.1% and the CAC was down 0.4%. In early EU, lower impact data was released. Spain’s HICP (harmonized inflation index) came in at 3.3% YoY in line with expectations, while the monthly basis was 0.4% higher than the -0.7% forecasted. During the European session, the German Bundesbank President Jens Weidmann commented about the digital euro and the possible disruption of the banking sector. "A gradual approach might make sense given the risks involved – that means a digital euro with a specific set of features and the option to add further functionalities later," Weidmann told a conference. Regarding monetary policy, Weidmann made no comments. It’s a quieter day with a lack of data. Tomorrow’s ECB Lagarde speech and Eurozone CPI being the key drivers ahead.

GBP

The AUDGBP followed suit to make a loss, flirting with the 0.53 handle, trading at 0.5299 at the time of writing. The London Benchmark FTSE 100 closed with a modest -0.5% loss. In early data, UK payrolls have returned to their pre-pandemic levels, and vacancies are at a record low. The number of payroll employees rose by 241,000 in August. The UK unemployment rate has met expectations of 4.6% in the three months to July, 0.3% lower than the previous quarter. All in all, a pretty solid showing from the UK's labour force.  A busier few day’s ahead for the pound with local CPI & PPI and retail sales figures on the horizon.

NZD

The AUDNZD pair maintained its bearish momentum to trade as low as 1.0296 before coming back to trade at 1.03146 this morning. Tomorrow's Q2 GDP data will likely show that the Kiwi economy had strong momentum prior to the Delta outbreak from mid-August. A solid print shouldn’t come as a shock to markets and the attention there is clearly focused on whether the current outbreak in Auckland can be eradicated and pave the way for the RBNZ to raise the OCR in October. Combine this with tomorrow's release of the Aussie employment data and tomorrow is set up for volatility.