Brief reprieve for AUD as US inflation pressures soften
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Daily Currency Update
On waking this morning, news of a ceasefire in the Middle East dominates headlines, yet we’ve seen little to no market response. Instead, direction has been driven by the latest US CPI report. Softer inflation pressures, specifically a larger than anticipated correction in the core CPI read, reduces the likelihood the Federal Reserve (Fed) will need to unwind recent rate cuts and look again to hiking rates. With the data driving US yields and the US dollar lower, the next Fed rate cut now fully priced in for July this year. The AUD popped back above US$0.62, marking session highs just short of US$0.6250 before settling between US$0.6220 and US$0.6225, leading into this morning's open.Our attentions turn now to domestic employment data. After the unemployment rate unexpectedly fell in November, we expect a correction back to 4%. Another strong labour market print will give the RBA license to keep rates higher for longer, potentially adding some support to the embattled AUD. Offshore, UK GD data, US retail sales and US jobless claims dominate the ticket.
Key Movers
Inflation data dominated the docket on Wednesday, with US and UK CPI data guiding direction. In the UK, headline CPI fell one tenth of a percent to 2.5% with core inflation dipping from 3.5% to 3.2% and most importantly, services inflation edged only marginally higher. The softer-than-anticipated data helped markets firm bets for a February rate cut. Analysts are now pricing a 90% probability of a rate reduction, up from 65% prior to the inflation updated. The GBP drifted lower following the print before popping higher after US inflation data printed softer than anticipated. The US dollar index fell 0.5% in the aftermath of the latest CPI report before clawing back most of the losses to open this morning in much the same position as yesterday. The yen was the day's big winner, boosted by the decline in US yields and comments from Bank of Japan Governor, Kazuo Ueda. Ueda noted that the bank will discuss a rate hike next week. Markets moved to price in a rate hike, forcing the USD back below 158.Our attentions turn now to US retail sales and Jobless claims, while UK GDP data and the ECB December meeting minutes dominate the European docket.
Expected Ranges
- AUD/USD: 0.6120 - 0.6250 ▲
- AUD/EUR: 0.5950 - 0.6080 ▲
- GBP/AUD: 1.9400 - 1.9800 ▼
- AUD/NZD: 1.1020 - 1.1120 ▲
- AUD/CAD: 0.8850 - 0.8950 ▲