Inflation Soars to 20-Year Highs

AUD

The Aussie had a mixed last 24hours against most majors despite yesterday morning's bumper CPI data. Holding the AUD back is the ever-increasing severity of the Covid lockdowns unfolding in China, specifically Shanghai, coupled with a risk-off market sentiment and a bullish FED offering optimism surrounding the timing of Interest Rate hikes. Yesterday’s CPI data release came in at 2.1% with trimmed CPI at 1.4%. This meant that y/y inflation has seen a 5.5% increase reaching 20-year highs. This has put significant pressure on the RBA to increase interest rates sooner rather than later. Pundits are increasing speculation around the possibility of a rate hike as early as Tuesday's RBA meeting with Prime Minister Morrison insinuating yesterday that the RBA does not need to wait for the end of the election cycle on his behalf to act, if they wish to do so. This would not be unprecedented as 2007 election also saw similar levels of inflation, where the RBA of the day did in fact take action amid an election. In the local equities market we saw the ASX down 0.8% in response to the increased bets of imminent rate hikes, the NIKKEI down a 1.2% with the Shanghai Comp the best performer up 2.5%. In Commodities Gold was down 0.1% and Iron ore down 0.2%, also detracting from impact of the the shiny inflation numbers. Local data is think on the ground now as we await what will be the most heavily anticipated RBA interest rate meeting in recent memory on Tuesday afternoon. 

USD

The Aussie dollar relinquished yesterday’s intraday gains falling to 2-month lows, eventually finding support at 0.71 now trading at 0.7117 at time of writing. Central Bank speculation is front of mind, with Hawkish Fed sentiment and a risk-off sentiment supporting the Greenback while disparaging investment in the Aussie amid increased risk sensitivity. During last night’s session we saw the release of the Goods Trade Balance come in at -125.3B against predicted -105.0B and previous -106.3B. Prelim Wholesale Inventories m/m also less than stellar at 2.3% vs a forecast of 1.5% and previous of 2.5%. At the break of the new day Pending Home Sales m/m was also worse at -1.2%, with Crude Oil Inventories taking a hit down to 0.7M. In US Equities the DOW JONES  and S&P 500 were up 0.2%, with the NASDAQ unchanged. Looking ahead on the US macroeconomic calendar, tonight at 10:30 we will see the release of the Advance GDP q/q expected to come in at around 1.1%, followed by Advance GDP Price Index q/q and Unemployment Claims.

EUR

The Aussie Dollar has managed to reclaim some of the lost ground it had experienced since last week, trading relatively higher at 0.6750 at time of writing. Out of the Eurozone we saw European natural gas jump 24% as Russia took further action against the west cutting off supply to Poland and Bulgaria. Russia’s Volodin stated that buyers of Russian Gas are required to pay in Rubles or also face cuts. This spurred 10 European gas buyers to open accounts for Rubles with Gazprombank, splintering Western unity against Russian encroachment in the European economic sphere, all while the war in Ukraine drags on longer than expected. German consumer confidence hit an all-time low at -26.5 in May from -15.7 in April. French consumer confidence printed at 88 in April, also missing expectations of 92. Also of importance we witnessed the German government cut the 2022 GDP forecast to 2.2% from 3.6%. The were comments from Lagarde overnight condemning the war in the East, however nothing new concerning potential timing of interest rate hikes from the ECB. In European Equities the DAX was up 0.3% and the CAC gaining 0.5% despite the poor data and downbeat mood on the ground. Looking ahead today we have the German Prelim CPI m/m, followed by Spanish Flash CPI y/y, Spanish Unemployment Rate and finally ECB Economic Bulletin wrapping up the day at 6pm.

GBP

The Aussie is in the green here, regaining the lost ground of the past 7 days, finally meeting resistance at 0.57, now trading at 0.56812 at time of writing. Relatively quiet in the UK in terms of macroeconomic data with imminent BoE rate hikes playing on investors' minds. Sentiment in the United Kingdom has seen a somewhat dovish turn this week with ​ Chancellor Rishi Sunak stating the Government must choose between a spending hike or the worst drop in living standards in 50 years. In Equities the FTSE was in the green by 0.5%. The BoE's next interest rate meeting is one week from today, just two days following our own RBA's equivalent meeting, so the possibility of fireworks here next week.

NZD

The AUD performed well against the NZD after the strong local inflation data yesterday, briefly dabbling in the 1.09s before settling lower and opening this morning at 1.0889. In NZD Macroeconomic news we got the Trade Balance release at 8:45 this morning coming in at -392M better than the expected -648M, with a previous of -691M. While at 11:00am this morning we will also have the ANZ Business Confidence release and not much else until next week.