Today's CPI is Critical to Next Week's Rate Decision

AUD

The Aussie dollar trades slightly lower against most major currencies this morning, despite having experienced a brief lift yesterday as China acted to slow a recent slide in its currency, which had been pressuring the Antipodeans. Key lending rates have been lowered in China, with the Aussie dollar acting as the usual liquid proxy for the Yuan (China is by far the largest buyer of Aussie resources) while both domestic and Asian equities rallied in the risk-on session. To the day ahead, our monthly CPI figures will be released at 11:30 with the headline figure expected at +6.1% y/y, down from last month’s surprise jump to +6.8% which all-but confirmed the RBA’s subsequent interest rate hike. Even if on-expectations, a figure of +6.1% is undoubtedly too high and adds weight to futures markets’ pricing of another hike in August. Next Tuesday’s interest rate decision, however, lies in the balance with markets only pricing in a 33% chance of the RBA hiking to 4.35%. Regardless, further volatility is expected late this morning.

USD

The AUDUSD traded largely flat overnight to open at 0.6682 with USD demand (all positive data from the States yesterday) balanced with AUD demand (large CNY sell-offs). Risk sentiment turned and a solid rebound on Wall St saw the NASDAQ close +1.7%, S&P 500 +1.1% and Dow Jones +0.6% as Durable Goods Orders, New Home Sales and Consumer Confidence all largely exceeded expectations. Even so, considering the low likelihood of a dovish turn by Fed Chair Powell at his Sintra speech today, an acceleration in the Dollar decline doesn’t seem very likely. The next major data dump will be tomorrow evening, where we’ll see US Final GDP q/q (projected at +1.4%), Unemployment Claims and Pending Home Sales.

EUR

The AUDEUR has furthered recent downward pressures overnight, opening at 4-week lows of 0.6098 as evidence of a deteriorating economic outlook in the Eurozone appears to be mounting. A quiet day ahead, while tomorrow we’ll see German Preliminary CPI m/m. The figure is expected at +0.2%, adding weight to the ECB’s primary focus on inflation concerns as opposed to the growth discussion. ECB President Lagarde will also speak overnight where she’s expected to reiterate the hawkish tone received from the central bank’s latest policy meeting: a hike in July is necessary, while September’s decision remains up for debate.

GBP

AUDGBP opens relatively flat at near-4-week lows of 0.5241, having given back overnight gains to 0.5279, despite a lack of economic data in the past 24h. Another quiet day ahead, with Bank of England Governor Bailey speaking this evening at the ECB Forum on Central Banking, in Sintra. Another 50bps hike in August remains on the table, with BoE officials unlikely to push back against tightening expectations for now.

NZD

AUDNZD trades a little higher at 1.0856 ahead of Thursday’s Reserve Bank of New Zealand Statement of Intent, which will include the central bank’s objectives for the next 3 years and budget for the next 12 months. Volatility isn’t expected, although the Statement usually provides insights into the bank’s strategic priorities.