Softer Aus Inflation Quashes Rate Hike Bets

AUD

The Aussie Dollar opens flat, having plummeted in yesterday's session off the back of softer-than-expected domestic inflation figures, with the currency later strengthening off well-performing commodities, improved risk sentiment and dovish remarks from the US Federal Reserve. Asian equities finished yesterday considerably higher with the ASX +1.7%, Shanghai Composite +2.1% and Nikkei +1.5%. Similarly, commodities closed in the green with Crude Oil +5%, Natural Gas +2.2%, Gold and Silver +0.8%, Iron Ore +2.1% and Copper+2.6%. Australian Retail Sales posted a +0.5% monthly increase, while China's Manufacturing PMI showed a third consecutive month of contraction in their manufacturing sector, weighing down the AUD in the late morning. Most importantly, we saw Australian CPI figures, which are especially important as they were the last major data release ahead of the RBA’s interest rate decision next week, therefore playing a greater role in guiding the RBA’s decision. CPI q/q and CPI y/y both read on par with expectations at 1% and 3.8% respectively. However, the Trimmed Mean CPI q/q (this excludes the 30% most-volatile components) missed expectations of 1%, reading at 0.8% and indicating inflation is easing, giving the RBA less ammunition for an August rate hike. The AUD immediately weakened in the aftermath. A quieter day ahead with only the release of our Goods Trade Balance, Import Prices q/q, Commodity Prices y/y and Chinese Caixin Manufacturing PMI. Tomorrow, we'll see Australian Producer Price Inflation (PPI).
 

USD

AUDUSD touched 3-month lows of 0.6479 off the back of Australia's softer-than-expected inflation report yesterday, with the pair retracing to 0.6546 this morning after dovish commentary from Federal Reserve Chairman Jerome Powell after holding the Federal Funds Rate at 5.5%. A strong performance from wall street with the S&P500 +1.6%, Dow Jones +0.2% and Nasdaq +2.6%. Last night we saw quite a few data releases out of the US, the ADP Non-Farm Employment Change read weaker than expected, with the Employment Cost Index also missing expectations, reflecting a weakening US labour market. Notably, the Federal Reserve left rates on hold at a 20-year high of 5.5%, having been held there since July 2023, with FOMC Members unanimous in their decision. In the Press Conference, Fed Chair Powell stated that a rate cut is likely if supported by incoming data, with the USD weakening in the aftermath. Looking to the day ahead, the major releases out of the US include their Unemployment Claims and ISM PMIs.
 

EUR

Despite seeing 5-month lows of 0.5987 off the back of softer-than-expected Australian inflation data yesterday, AUDEUR also opens this morning relatively flat at 0.6047. European equites closed higher yesterday with the DAX +0.5% and CAC 0.8%. Yesterday's main events data wise came in the form of the Core CPI Flash Estimate y/y and CPI Flash Estimate y/y, both coming in above expectations with Core CPI y/y beating expectations of 2.8% at 2.9% and CPI y/y beating expectations of 2.5% at 2.6%. Tonight, we will see a slew of mid-tier data releases in the form of Manufacturing PMI’s out of France, Germany, Italy and Spain.
 

GBP

The AUDGBP pair saw 1-year lows overnight of 0.5047 due to AUD weakness after our weaker-than-expected inflation data yesterday, however, the pair retraced this morning to open flat at 0.5089. British equities closed higher with the FSTE gaining 1.1%. No data out for Great Britain yesterday however a big night tonight as we await the release of their interest rate decision. The outcome of the Bank of England’s August policy meeting is on a knife edge with current market pricing split 50:50 on the chances of a rate cut. Very little has been heard from the Monetary Policy Committee Members since the election was called in May, which makes it difficult for economists to make a strong conviction call. Recent data have also made the call a tight one, with wages moderating in-line with BoE expectations but June services inflation coming in at 5.7% y/y, above the BoE’s staff forecast of 5.1%. The lack of market conviction and silence from key MPC Members could indicate the BoE could hold off in August, instead using its statement as an opportunity to set up a cut in September. Either way, the lack of conviction increases the odds of volatility for the AUDGBP pair.
 

NZD

The AUDNZD loses close to 1% over yesterday’s session, having given up the 1.10 handle, we open this morning lower at 1.0996. Yesterday morning we saw Building Consents m/m drop from -1.9% to -13.8% and ANZ Business Confidence move from 6.1 to 27.1. No more data for this week.