US Inflation Cools, Yet Fed Signals Only One 2024 Cut
AUD
The Aussie Dollar opens higher against the majors after weaker-than-expected US inflation data last night saw an improvement in global risk sentiment. The ASX ended yesterday -0.5%, brought down by utilities and tech, while Asian equities closed mostly lower with the Nikkei and Hang Send down -0.7% and -1.3% respectively. Figures from China yesterday showed their Consumer Price Inflation (CPI) grew less than expected in May (0.3% m/m, exp. +0.4% m/m) as consumption remained largely languid in the face of an uncertain economic recovery. On the other hand, Producer Price Inflation (PPI) shrank at a slower-than-expected pace, marking the smallest contraction since Feb 2023 amid signs of a sustained turnaround in the industrial sector. Later this morning, we’ll see the Aussie Dollar’s main event for the week, being our Employment Change and Unemployment Rate. Essentially, job creation in Australia is not keeping pace with the increase in the workforce. We may see some AUD movement around 11:30am, depending on where the employment data lands.
USD
AUDUSD shot up over 1.4% to 0.6704 highs overnight before retreating a little to this morning’s open at 0.6661. This came after US Consumer Price Inflation (CPI) broadly cooled, stepping down for the second month in a row and landing below expectations. The Core figure (which excludes volatile food and energy prices) printed at +0.2% month-on-month, while the headline figure showed prices unchanged for the month, or 3.3% year-on-year. The figures, taken in line with the previous release, may represent the early stages of inflation easing, although policymakers have stressed they’d need to see several months of price pressures receding before they’d consider lowering rates. A little later in the session, we saw the Fed hold their key interest rate at 5.5% (as expected). The key takeaway was that the central bank signaled only one interest rate cut is expected by year-end, in contrast to the potentially for 3 cuts that was reported in March. The Committee, in its closely watched ‘dot plot’ of individual participants’ rate expectations, did indicate a more aggressive cutting path in 2025, with 4 cuts (a full percentage point) currently priced in, up from the 3 reported in March. The softer US inflation figures contrasted with the relatively hawkish central bank rhetoric, but ultimately spurred Wall Street and saw the Nasdaq close +1.5%, S&P 500 +0.9% with the Dow Jones -0.1%. Tonight, we’ll see Producer Price Inflation (PPII), Unemployment Claims as well as Treasury Secretary Yellen speaking.
EUR
AUDEUR soared to 6-month highs of 0.6182 over night off the back of the weaker US consumer inflation print. The pair currently sits at 0.6161, having only been here a couple of times since January. The DAX and CAC gained +1.4% and +1.0% respectively in yesterday’s session. Overnight, European Central Bank Member Nagel acknowledged the central bank’s recent decision to lower rates was the right one, however, he warned the Eurozone’s underlying consumer price growth remains stubborn and should not be ignored. ‘We shouldn’t be too over-confident, too over-optimistic’, he said. This ties in with economists’ view that the recent ECB interest rate cut does not necessarily mark the beginning of a cutting cycle. Looking forward, nothing major today while tomorrow evening ECB President Lagarde will speak at the 30th Dubrovnik Economic Conference, in Croatia.
GBP
AUDGBP has found comfort (again) above the 52 handle, having traded sideways around the 0.5180 level throughout the course of yesterday before briefly falling to 0.5139 lows (weak US CPI event) before soaring up to this morning’s open at 0.5204. The FTSE gained +0.8%. Yesterday’s UK GDP figures showed no growth in April 2024, following growth of +0.4% in March. Services output increased slightly, while Production output and Construction output each fell. We’ve got a potentially quiet day ahead, with the tentative release of the Bank of England’s Quarterly Bulletin expected in the near-term. The release will include commentary on market developments and monetary policy operations.
NZD
AUDNZD has gained some ground over the past 24h, having bottomed out at 1.0735 off the back of the US CPI event (US inflation easing more than expected), before retracing to this morning’s open at 1.0769. Another quiet week in terms of Kiwi data, with zero data yesterday, while tomorrow morning will bring the BusinessNZ Manufacturing Index as well as the Food Price Index.