Markets Still Reeling from Sky-High US Inflation

AUD

In the wake of record high inflation data out of the US (see below), the AUD continued to crater on Monday as the global market sentiment soured. Asian Equities closed their session heavily in the red with the Hang Seng the worst performer, down -3.5%, the Nikkei down -3.0% while the Shanghai Comp closed -0.9%. Domestically, the Australian Share Market fell 1.3%, the ASX 200 falling below 7,000 points as global equities enter a ‘bear market’. It was quiet start to the week with little to report on domestically with the Australian long weekend. Elsewhere, as Asia opened yesterday, traders were startled by recent news that the local authorities delayed the reopening for schools in Beijing that had been planned for Monday, which raised the prospect of more forceful lockdowns returning to cites and crippling logistics and transportation. Little in the way of domestic data ahead with NAB business confidence being the only mention.
 

USD

AUDUSD witnessed heavy selling into the fourth straight day and dropped to a fresh four-week low of 0.6910 before coming back to trade at 0.6934 this morning. US Equities continued their Monday sell-off as Tech stocks took heavily losses with the Nasdaq down -4.7%, the S&P 500 down -3.9% and the Dow Jones closed down -2.8%. US 10-year yield rose 7bp to 3.23%, the highest since 2018. The US 2 and 10-year yield inverted for the first time since April. A strong CPI print on Friday further fuelled the inflation crisis, as well as the Fed to continue to hike, US CPI rose 8.6% y/y, beating expectations of 8.3%, the highest in 4 decades. To the data ahead, it’s a quiet start to a busier week with the main macro events being US PPI, US Retail Sales for May, followed by Wednesday evening's Fed meeting, where some are calling for the central bank to raise rates by at least 75bps.

EUR

AUDEUR retreated lower and sold off most of its June gains as the pair trades as low as 0.6641 before coming back to trade at a rate of 0.6661 this morning. European Equities softened further into their Monday close as the CAC fell -2.7% and the DAX closed down -2.4%. The spread between Italian and German 10-year Bond yields hit the widest since May 2020 at 236.9bps, up 5 on the day. German 2-year yields climbed above 1% for the first time since 2011. A lack of local data to start the week has Central Bank’s in focus, The ECB has been more hawkish of late and it intends to end QE by 1 July and hike policy rates by 25bp in connection with the July meeting, according to its latest statement released last week. As for macro releases, the Eurozone sees the release of German CPI as well as the German Economic Sentiment.

GBP

AUDGBP bucked the trend against its peers and had barely a scratch this morning with the pair trading among similar levels to Friday, trading at a rate of 0.5712 at the time of writing. The FTSE 100 index ended with hefty losses on Monday as global equities suffered further big falls. At the close, the UK index was down -1.5% at 7,205 points. In the UK session, the Office of National Statistics (ONS) reported UK GDP fell by 0.3% in April. Services fell by 0.3% and was the main contributor to GDP’s fall, reflecting a decrease of 5.6% in human health and social work. Production fell by 0.6%, attributed to a fall in manufacturing of 1% on the month, as businesses continue to report the impact of supply chain issues and impact of price increases. Looking ahead to a busier week for the pound with UK Unemployment figures this evening followed by the BoE Monetary Policy Meeting on Thursday.

NZD

AUDNZD staged a corrective pullback from recent four-year highs, still managing to maintain the 1.10 handle as the pair trades at a rate of 1.1061 this morning. Dampened market mood and little macro events keeps investors seeking a flight to safe-haven currencies as the inflation crisis continues on. This morning, the New Zealand calendar revealed May’s food inflation (FPI) with Food prices rising 0.7 percent in May 2022. After seasonal adjustment, they were up 0.8 percent. Little in the way of local data to start the week with market participants likely focusing elsewhere with US PPI, Retail Sales and the upcoming Monetary Policy meeting being the key focus.