Home Daily Commentaries Australian dollar driven lower on stronger US CPI print

Australian dollar driven lower on stronger US CPI print

Daily Currency Update

AUD - Australian DollarThe Australian dollar turned lower overnight, drifting back below 0.7450 having tested a break above 0.75 through the domestic session. A much higher than anticipated US CPI data print prompted analysts to bring forward expectations for a Federal Reserve rate hike. Core inflation jumped nearly 1%, taking year-on-year gains to 4.5%, the fastest pace of appreciation in almost 30 years. The data was skewed by a surge in prices across the used car sales market as supply constraints continue to disrupt the availability of semiconductors and the production of new vehicles. Used car prices jumped 10.5% in the month of June and added almost half a percent to the overall CPI increase. Given the lean toward used car sales in this month print, there is still a strong argument inflation pressures are being driven by supply side constraints and will prove transitory. That said, June marks the third month where CPI has surprised to the upside, suggesting transitory pressure may linger through the short term and force the Fed to bring forward its tapering plans. The AUD touched intraday lows at 0.7430 in the wake of the data release and has struggled to regain momentum into this morning’s open, where it currently buys 0.7446 US cents.Our attentions today turn to Fed Chair Jerome Powell as he reports to congress tonight ahead of tomorrow domestic unemployment report.

Key Movers

The US dollar enjoyed a broad based uptick on the back of a stronger than expected increase in headline and core inflation. CPI data showed price pressures increased again in June, fuelling calls suggesting the uptick over the last three months is no longer transitory. Supply side constraints continue to plague a number of key industries, but with little sign those constraints will ease in the near term as the Pandemic continues to disrupt the global supply chain, we expect inflation pressures will continue to linger through the short-medium term. The Bloomberg dollar index pushed back toward 3-month highs as the euro fell below 1.18 and the GBP tested a break below 1.38. Attentions today turn to Fed Chair Jerome Powell and any clue regarding Fed policy changes, while the Bank of Canada is expected to further taper its bond buying program when it meets tonight. Markets have priced in a BoC rate hike in Q2 next year, and the reduction in bond purchases is the first step toward interest rate adjustments. Should policymakers surprise markets and maintain the current pace of purchase, the CAD may come under pressure as market are forced to re-price interest rate expectations.

Expected Ranges

  • AUD/USD: 0.7390 - 0.7520 ▼
  • AUD/EUR: 0.6250 - 0.6350 ▲
  • GBP/AUD: 1.8450 - 1.8620 ▼
  • AUD/NZD: 1.0680 - 1.0750 ▲
  • AUD/CAD: 0.9280 - 0.9360 ▲