AUD edges lower amid softer commodity prices and stubborn US inflation

Key Movers

Price action across major currency markets was largely muted Tuesday as investors offered little by way of response to US inflation data. The November CPI print promised to be a catalyst for volatility with markets uber sensitive to anything that may disrupt the Fed rate path. Instead, data was printed largely in line with expectations. Falling Gasoline prices and softer food inflation helped lead the headline print lower while a marginal uptick in core price pressures was largely dismissed, with much of the gain driven by an uptick in used car costs. Annual headline inflation continued to track lower, while core inflation remained flat at 4%. While in line with expectations, they are still much to high for the Fed and offer little impetus to consider cutting rates in the first half of next year. Traders were forced to pare back expectations for rate cuts through 2024. While the USD gained against commodity currencies like the AUD, CAD and NOK it gave up small losses to the JPY, CHF and EUR. The DXY and BBDXY indexes both closed lower, largely driven by a correction across USD/JPY and EUR/USD.
Our attention now turns to a slew of Central bank policy updates with the Fed, European Central Bank and Bank of England dominating the docket. With UK gilts plunging overnight amid softer wage data and the market now pricing in a rate cut for June we are keenly attuned to the commentary and guidance policy makers share in shaping direction into the end of 2023.