AUD steady despite volatile overnight session
Daily Currency UpdateThe Australian dollar opens in much the same position as it did Wednesday despite a wild and eventful overnight trading session. The AUD tracked sideways through local trade bouncing between US$0.6745 and US$0.6770 as markets pared positions leading into the much-anticipated US CPI update. US price pressures surged in June advancing 1.3%, propelling the annual inflation rate above 9% , a forty-year high. With little sign inflation pressures easing, markets rushed to price in further Fed rate hikes, moving to price a 100-point hike when the FOMC meets later this month. The AUD plunged in the wake of the print, falling off intraday highs at 0.6800 to touch session lows at 0.6730 before recovering losses amid weaker USD demand. Fears the sustained inflation pressures and rapidly rising interest rates will mean a front-loaded tightening cycle with rates to ease in the longer term forced investors to correct USD gains amid a flattening yield curve and signals of recession ahead.
Our attentions turn now to domestic employment and labour market data. We anticipate robust job growth and strong labour market performance, driving a dip in the unemployment rate. A strong read will reinforce calls for the RBA to accelerate the pace of tightening as global headwinds exacerbate near-term inflation forecasts.
Key MoversThere was ample price action and volatility across major currencies to digest through trade on Wednesday as an eventful overnight session saw the Euro test a break below parity and the CAD lurch higher. Having tracked sideways early the USD surged following a robust and unexpected jump in inflation pressures. Headline CPI data showed prices rose 1.3% in June, lifting the annualised rate of inflation to 9.1%, a forty-year high. While most anticipated rising gasoline and food prices would drive sustained price growth a closer look at core inflation measures afforded markets a rude shock. Core inflation lurched 0.7% while alternative measures of inflation showed signs price pressures are actually accelerating. The strong print forced markets to adjust expectations for Fed policy pricing in a 100 basis point hike this month and a 75-point adjustment in September. As markets rush to front-load interest rate expectations a flattening in the yield curve and emerging signals of recession ahead prompted a USD correction. Having forced the euro below parity, the dollar reversed course allowing the single currency to recover back above US$1.0050.
In other news, the Canadian dollar surged through US$0.77 following the Bank of Canada’s surprise 100 basis point rate adjustment. Markets had priced in an aggressive 75 basis point move and the 100-point move forced investors to adjust positions and expectations for future policy change. The Bank of Canada adjustment is clear evidence Central banks are front loading the tightening cycle in a bid to control inflation outcomes through 2023 and avoid even higher interest rates in the future.
- AUD/USD: 0.6730 - 0.6830 ▲
- AUD/EUR: 0.6650 - 0.6750 ▼
- GBP/AUD: 1.7420 - 1.7680 ▼
- AUD/NZD: 1.0980 - 1.1080 ▲
- AUD/CAD: 0.8720 - 0.8840 ▼