AUD holds up in face of hotter US inflation print
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Daily Currency Update
The Australian dollar closed the day lower but performed admirably in the face of a hotter-than-expected US inflation update. US CPI data was stronger than anticipated in February, driving US yields and the US dollar higher, while equities and risk assets retreated.Markets were hoping to see a correction in the January numbers and the stickier-than-expected read is less than preferable for policymakers leading into key PCE and PPI data. The AUD pitched toward intraday lows at US$0.6584 following the print, but found support and clawed back above US$0.66, leading into this morning’s open.
Investors were seemingly braced for worse and while headline inflation edged upward, closer analysis showed core inflation continues to track lower.
With little of note on today’s domestic ticket, our attention turns to UK GDP data and ECB commentary ahead of more key US data on Thursday and the RBA policy update next Tuesday.
Key Movers
The US dollar outperformed through trade on Tuesday, buoyed by a hotter-than-anticipated February CPI print. US yields rallied and the dollar edged higher after headline CPI wrote in above estimates, forcing markets to pare bets for a June rate cut.Markets are now pricing just a 20-basis point cut in June, down from 22, while cuts into the end of the year have been amended down from 91 to 85-basis points. While only a small correction, it speaks to the narrative of uncertainty surrounding the timing and trajectory of US rate adjustments and offers the dollar a floor through the near term.
With the DXY index higher, the euro tracked sideways recouping losses incurred following the CPI print. Having slipped below 2.28, the GBP failed to regain the handle and trades just below 1.2790. The yen was the day's notable underperformer giving up half a per cent following comments from Bank of Japan governor Ueda.
With markets focused on the timing of policy adjustment Ueda said “Although there is weakness in household spending data my view is that the gradual recovery continues.” Markets saw this as cautious and pared bets for any near-term policy change.
Expected Ranges
- AUD/USD: 0.6500 - 0.6700 ▼
- AUD/EUR: 0.6000 - 0.6100 ▼
- GBP/AUD: 1.9200 - 1.9400 ▼
- AUD/NZD: 1.0700 - 1.0800 ▲
- AUD/CAD: 0.8880 - 0.8980 ▲