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Aussie jumps 1% on soft US CPI print and moderation in Treasury yields

By OFX

The Australian dollar recouped losses suffered mid-week rebounding back above 0.75 U.S cents on Thursday. Softer than anticipated US inflation data for April befouled what has otherwise been a string of upbeat macroeconomic data sets for the world’s largest economy and dampened expectations the Fed will raise rates at a faster pace than first expected. The AUD rallied 1% for the day touching intraday highs at 0.7540.

Direction throughout the day was largely driven by the slowdown in consumer led inflation and while y/y CPI held steady above 2% when adjusted for cyclical factors and annual adjustments inflations has seemingly moderated through the last three months. Couple this with a dip in 10 and 2-year treasury yields and demand for the world’s base currency waned, pulling the AUD off 11-month lows and encouraging some short term upside.

Attentions now turn to US consumer sentiment for direction into the weekly close while RBA minutes, Quarterly Wage prices and Labour market data all fleck next week’s docket and provide possible markers for direction within recent ranges.

The New Zealand dollar continued its slide yesterday following the announcement of a more dovish policy in Governor Orrs first monetary policy statement whereby the RBNZ left interest rates on hold at 1.75%. After the initial gap lower to 0.6935 on open we saw eventual lows of 0.6903 at the close of domestic play.

Despite Orr presenting a downgrade in future growth in his statement, Orr spoke later in the morning in front of the Finance and Expenditure select committee and suggested that the local economy was “Well balanced, employment very strong with inflation low and stable”. Furthermore, it is possible that the next movement in rates could be either up or down.

The Kiwi saw a slight recovery in overnight trading as United States inflation figures came in slightly below expectations and caused the US Dollar to pull off from recent highs. The New Zealand dollar opens this morning at 0.6965 ahead of the release of Business NZ Manufacturing Index and FPI figures for the month.

The Great British Pound is weaker this morning when valued against the US Dollar, trading a 24 hour low of 1.3460, on the back of the Bank of England's (BOE) monetary policy decision and soft UK data prints. Overnight the BOE left rates on hold and offered a dovish outlook reducing the odds for a rate hike in H2 of 2018.

On the data front Industrial Production was up by just 0.1% in the month of March, while Manufacturing Production in the same month fell 0.1%, better than the 0.2% slide expected. There are no macroeconomic data releases scheduled for today.

The GBP/USD pair is now currently trading at 1.3515. We continue to expect support to hold on moves approaching 1.3460 while now any upward push will likely meet resistance around 1.3530.

Slower than expected US inflation data and strong demand for a 30-year US Treasury auction put downward pressure on yields and thus the USD. The dollar lost around 0.7%, it’s weakest performance since March.

The closely watched Consumer Price Index came at 2.1% year-over-year in April, lower than the 2.2% expected by the market, on the back of cheaper cars, airfares and home utilities. The debate will now turn into the FED and the number of interest rates hikes they will need for this year; this data point certainly helps to reduce the pressure, as inflation seems to be, at least in the short term, more controlled than what the market was anticipating.

US initial jobless claims came slightly lower than expected at 211k vs 219ke. Last night news were all supportive of risk and US stocks pushed to the highest level in almost 2 months.

On the Geopolitical front, Trump said he will meet North Korean leader Kim Jong Un on June 12 in Singapore.

The Euro strengthened more than 0.6% versus the dollar last night, closing just above the 1.19 level, at 1.1918, rebounding from a year-to-date low, on the back of broad USD weakness.

US inflation data suggests the FED won’t need to step up the pace of interest rate hikes for the rest of the year, providing support for the European currency close to the lows of the year. Additionally, it seems like the stage is set for a populist government to form in Italy.

Next technical levels for EURUSD: support should be found around 1.1830, the 55-weekly moving average while 1.1961 should act as next resistance.

The loonie has been on a positive path lately, rising as much as 0.9% last session versus the USD for a second day.

The CAD has been outperforming its peers thanks to rising commodity prices, specially oil, and the spike in Canadian sovereign yields. The 2-year government bond yield traded this week at the highest level since May 2010.

Moving forward, the loonie could find more support if employment numbers come stronger than expected today or if we get positive headlines from NAFTA talks.

Next level to watch for the USDCAD sits around 1.27 whit resistance around 1.2850.