AUD tumbles as US tariff effects dampen Fed rate cut expectations
Written by
Daily Currency Update
The Australian dollar was among the worst performing majors on Thursday amid an upswing in US treasury yields and rates. Domestic labour market data printed in line with expectations and did little to move the needle through the local session. Modest employment growth through July and a marginal downturn in the unemployment rate ensured RBA rate expectations were little changed, leaving the AUD to track within a narrow range ahead of offshore trade. Enter a stronger than expected US PPI print. US PPI data for July jumped near 1%, the fastest upswing in nearly three years and clear market tariffs are now impacting US businesses, even if the costs have not yet been passed onto consumers. The stronger print all but eliminated any chance of a 50-basis-point Fed rate cut in September and helped drive an upswing in US 2-year yields. With the US dollar buoyed, the AUD slumped back below US$0.65, down about 1% on the day.Our attentions turn now to Japan Q2 GDP data, China activity indicators and US retail sales.
Key Movers
There is plenty to digest this morning as markets responded to a scorching US PPI print and commentary from key Fed officials overnight. US rates and yields lurched upward, dragging the USD with them after US PPI data for July climbed 0.9%, its fastest acceleration in nearly three years. Analysis of the raw data showed core inflation measures jumped from 2.6% to 3.7% year on year and is consistent with the impact of higher tariffs. While inflation is yet to flow through to consumers, as evidenced by this week's softer CPI print, the data suggests it is only a matter of time before inflation again begins to rise, all but eliminating any hope of a 50-basis-point Fed rate cut in September. The GBP found support against the USD on stronger than expected Q2 GDP data, while the Japanese yen outperformed. Comments made by US treasury secretary Scott Bessent helped propel the yen higher. Bessent suggested the Bank of Japan were behind the curve and needed to accelerate the pace of rate hikes to combat rising inflation. The USD/JPY fell below 146.50 following the comments, but has since recovered losses after the stronger PPI data and now sits back near 148.Our attentions turn now to Japan Q2 GDP data, China activity indicators and US retail sales.
Expected Ranges
- AUD/USD: 0.6450 - 0.6590 ▼
- AUD/EUR: 0.5550 - 0.5630 ▼
- GBP/AUD: 2.0650 - 2.0950 ▲
- AUD/NZD: 1.0920 - 1.1020 ▲
- AUD/CAD: 0.8920 - 0.9020 ▼