Softer US inflation could action Fed pause after July
AUD
The overnight session saw the Aussie dollar gaining ground against all majors, opening higher this morning with the exception of the NZD. Asian equities were mixed on close with the ASX +0.4%, Nikkei & Shanghai Comp both -0.8%. Commodity prices were also mixed on close with Crude Oli +1.5%, Natural Gas -8.1%, Gold & Silver both flat, Iron Ore +0.9%, and Copper +2.3%. Not much in the way of local data yesterday, however Governor Lowe delivered his last speech before his term at the bank is up for review/renewal. Looking to the day ahead, locally we will see the release of the MI Inflation Expectations which were previously at 5.2%. Out of China we are expected to see their Trade Balance and USD-Denominated Trade Balance.
USD
The AUDUSD pair saw some very considerable gains overnight, gaining over a cent and reaching highs of 0.6796, before opening up this morning at 0.6789. Wall Steet saw a bit of a lift at closer with Dow Jones +0.3%, S&P 500 +0.8% and NASDAQ +1.2%. The AUD/USD saw a pick up around the time US CPI was released, with the results lower than expected across the board. Headline CPI rose 0.2% m/m and 3.0% y/y, both 0.1% lower than forecasts with Core CPI at 0.2% m/m against expectations of 0.3% while the y/y result was 4.8% compared to expectations of 5.0%. The Fed has made significant ground with their interest rate hiking campaign, having brought annual inflation down to 3.0% from 9% last year. Furthermore, the Fed’s Beige Book indicated that economic activity increased slightly in the reporting period with some districts reporting a slowing in pace of price increases with price expectations generally seen to be stable or lower in the next few months. To the night ahead, markets expect little movement in secondary employment data anticipating continuing claims to remain at 1720k and a slight increase in Initial Jobless from 248k to 250k. PPI could also tip the needle further if lower than expected.
EUR
The AUDEUR Pair experienced volatility overnight, choppy conditions saw half a cent range with highs of 0.6114 before slightly retracing to open at 0.6094. European equities closed in the green with DAX +1.5% and CAC +1.6%. Not much in the way of meaningful data overnight with only the German 10-y Bond Auction. Tonight, we will see the release of some more mid-tier data in the form of French Final CPI m/m, EU Economic Forecasts and ECB Monetary Policy Meeting Accounts. Not expected to move markets.
GBP
AUDGBP opens at 0.5225, gaining 1% overnight in the aftermath of soft US inflation data. Quiet on the data front, while the Bank of England’s Governor Bailey hosted an hour-long press conference where he acknowledged signs of a cooling labour market and the inconsistencies between current wage growth and the inflation target. Monthly GDP data remains today’s focus with the UK economy expected to deteriorate further. The figure is expected at -0.3%.
NZD
AUDNZD opens at 1.0779, having lost some ground overnight in the aftermath of yesterday’s RBNZ interest rate pause. Central bank Members noted NZ inflation (and inflation expectations) are expected to continue to decline as the current 5.5% OCR is constraining spending and inflation pressure as required. Regardless, the accompanying statement insisted inflation remains too high for the time being, but with the economy now in recession, it’s a relatively safe bet that we’ve seen the terminal rate.