US inflation surprise spurs overnight volatility
Friday 11 February, 2022
Daily Currency UpdateThe Australian dollar enjoyed a wild and volatile overnight session on Thursday, surging back above 0.72 only to relinquish gains and close the day unchanged. The AUD tracked sideways through the domestic session bouncing between 0.7160 and 0.7190 as investors sidelined major bets until after the release of US CPI inflation data for January. Another upside surprise spurred markets to firm in expectations the FOMC and Federal reserve will raise rates by 50 basis points next month. The USD rallied immediately after the data was printed, forcing the AUD toward intraday lows at 0.7150 before finding support and pulsing through 0.72. Curiously markets turned on the USD forcing the world’s base unit lower on the session. The AUD rallied to touch intraday highs at 0.7250 before correcting into this morning’s open, where it now buys 0.7160 US cents. With Thursday’s key risk event now behind us and little of note on today’s macroeconomic ticket, we expect little change in the underlying AUD narrative. We are again range bound between 0.70 and 0.73 US cents and we anticipate markets will maintain a narrow trading handle into next month's Fed meeting, with direction lead by amendments in expectation for Fed policy change.
Key MoversIt was all about US CPI inflation data on Thursday with markets sidelining major bets until after the data printed. Having anticipated a modest easing in price pressures, markets were surprised by the uptick in headline and core inflation with baseline prices pushing above 7.5% year on year and core good costs extending beyond 6%, their highest annual appreciation in 40 years. The sustained surge in prices marks the 8th month in the last 10 that CPI data has surpassed market estimates, highlighting just how quickly inflation pressures have escalated. While the uptick all but guarantees the Fed will adopt an aggressive approach in normalising monetary policy, the market curiously moved against the USD forcing the DXY index lower on the day. The euro eyed 1.15 touching intraday highs at 1.1490, while the GBP made a brief foray above 1.36. With Thursday’s key risk event now behind us our attentions flip to US consumer sentiment data ahead of next weeks Retail sales print and UK CPI read.
- AUD/USD: 0.7070 - 0.7250 ▲
- AUD/EUR: 0.6210 - 0.6330 ▼
- GBP/AUD: 1.8780 - 1.9080 ▲
- AUD/NZD: 1.0680 - 1.0780 ▲
- AUD/CAD: 0.9050 - 0.9180 ▲