AUD struggles continue as market attention turns to US inflation data.
Daily Currency UpdateThe Australian Dollar continues to track below fair value, struggling to extend beyond resistance at 0.749. Price action across currency markets was largely muted on Monday as investors appear content in sidelining bets until after tonight’s all important US CPI inflation report. Leading indicators suggest supply side constraints will continue to drive an uptick in inflation pressures. Another surprise to the upside will likely exacerbate the recent risk off trend and extend the USD’s mini resurgence.
While we are still anticipating the AUD will return to levels nearer fair value estimates, short term headwinds, a growing Covid outbreak in Sydney and a slow vaccination rate have pushed the timeline of recovery nearer the end of the year and into 2022. With NSW recording 112 new cases on Monday Sydney’s lockdown will almost certainly be extended beyond into August. As the state struggles to contain the delta variant, the promise of an extended lockdown did prompt markets to correct RBA rate expectations and lower bond rates. While the impact on the AUD was minimal it adds to the current downturn and makes it all the more difficult to break the outside this bearish channel.
Key MoversThe US dollar outperformed most counterparts on Monday all through price action across currency markets was largely muted and gains were modest. A distinct risk off tone plagued commodity currencies while concerns surrounding the spread of the Delta variant heaped more pressure on the GBP. Prime Minster Boris Johnson has affirmed reports the UK would proceed with the removal of restrictions on July 19 despite concerns surrounding a resurgence in COVID cases. With much of the adult population now immunized the UK will act as a critical test case in understanding just how well we cope in a normal and free economy. We are closely watching hospitalisation rates and other severe health outcomes, like long COVID, in determining a broader bath to global recovery and re-opening.
In what promises to be a busy week ahead our attentions today turn to US CPI inflation data. We anticipate Core CPI will rise to near 4% year on year, its highest level in almost 30 years. A print above this handle will again spark calls for the Fed to move forward its program of monetary policy normalisation as the debate over whether the current uptick in price pressures in transitory or permanent continues to rage.
- AUD/USD: 0.7390 - 0.7520 ▼
- AUD/EUR: 0.6250 - 0.6350 ▼
- GBP/AUD: 1.8380 - 1.8720 ▼
- AUD/NZD: 1.0670 - 1.0750 ▲
- AUD/CAD: 0.9270 - 0.9350 ▲