Volatility Persists as US Inflation Figures Outperform

AUD

Despite significant overnight volatility off the back of US CPI figures (see USD section), the Aussie dollar is opening flat against the majority of its peers this morning. Barring the Westpac Consumer Sentiment report released yesterday morning there was nothing else on the docket for local data. However, China released its monthly CPI & PPI figures shortly after with both outperforming expectations by 0.2% printing 2.1% & 8% respectively This would have allayed to some degree the fears over an acute slowdown in China due to the ongoing Covid lockdowns. The ASX was up by 0.2% on Wednesday’s close after spending most of the day in to red, with health and real estate stocks leading the gain. Asian equities fared better after China reported an easing of Covid cases with the Shanghai Comp closing up 0.8%. Commodities were mixed with Iron Ore closing flat, however Copper stood out, closing 1.3% higher. In todays’ news the Melbourne Institute will release its Inflation Expectations report. China will also release its monthly New Loans & Money Supply figures to round out the session. No doubt the lack of tier 1 data will allow the release of US PPI figures tonight to be a driving force for the Aussie dollar.

USD

AUDUSD opens flat this morning at 0.6936 despite significant facing overnight volatility off the back of US Inflation figures released yesterday. The Aussie immediately dipped off the back of positive US data where CPI for April rose 0.3% MoM and 8.3% YoY, higher than expectations of 0.2% and 8.1% respectively. Core measures also beat expectations by 0.2%, coming in at 0.6% MoM and 6.2% YoY.  That was just the start of the volatility, with the risk-off move proving to be short lived, AUDUSD retracing all of its initial losses, before capitulating a second time to trade once again at the bottom of the range this morning. As a result of the better than expected inflation data, the DOW & S&P 500 closed down 1% & 1.6% respectively. Surprisingly the positive data didn't impact U.S 10-year yields which fell 6bps to 2.93% while oil rallied 5.6% to $105.40 a barrel.  Looking ahead, there will no respite from the volatility as the US will release its monthly PPI figures alongside weekly Unemployment Claims figures tonight which may be a major catalyst for market movement going into Friday.

EUR

AUDEUR is trading a mere 10pips higher than yesterday’s open at 0.6596 off the back after a tumultuous overnight session where it peaked at 0.6670. European data was limited with only Germany releasing its monthly CPI figures yesterday, matching expectations at 0.8%. ECB’s Nagel then hit the wires later in the session, commenting that policy normalization should be ‘swift and smooth’, adding that a rate hike could happen in July. ECB’s Lagarde also spoke, outlining that the inflation outlook is increasingly on target over the medium term. She continued, by saying an ECB rate hike may follow weeks after the end of bond buys, which should conclude in Q3. Lagarde concluded by saying, after the rate hike, the normalization process will be gradual. This hawkish talk may only indicate that several rate hikes are on the agenda to front load the efforts to curb Inflation. European equities reacted positively with the DAX & CAC closing up 2.2% & 2.5% respectively. Looking ahead there is little in the way of data however from the EZ, so the US data tonight may give the Euro ample reason to move (see above).

GBP

AUDGBP is the standout pair which managed to hold onto some gains, peaking at 0.5690 overnight before drifting to 0.5666 this morning. There was little in the way of UK news to spur movement yesterday with it being possible that the pair faced some residual effects of yesterday's US data (see above). UK Equities saw similar gains to their European counterparts with the FTSE closing up 1.4%. Looking ahead there is a plethora of low-level UK manufacturing, services & production data. This will include monthly GDP, Construction Output & Trade Balance figures. However, the most important release will be Preliminary GDP figures for the quarter which measures the change in the inflation-adjusted value of all goods and services produced by the economy. Given the numbers are looking at Q1, it's too early to measure the effects of recent BoE rate hikes.

NZD

AUDNZD is also opening flat this morning at 1.1029 having dipped as low as 1.0973 early this morning.  There was little in the way of Kiwi data yesterday however there is plenty to talk about today. The monthly Food Price Index figures will kick things off which will be followed by New Visitor Arrival data which will provide insight tourist activity of NZ post Omicron. The standout release will be of quarterly inflation expectations by RBNZ which should show further gains given ANZ’s monthly business survey for April showed inflation expectations going even higher. Last time, the 2-year inflation outlook in the RBNZ’s survey hit 3.27% y/y (a 30 year high).