Home Daily Commentaries Softer China inflation forces key commodity prices lower and acts as drag on AUD

Softer China inflation forces key commodity prices lower and acts as drag on AUD

Daily Currency Update

The Australian dollar tracked lower through trade on Monday, scuppered by weaker-than-anticipated China data. A consumer inflation report showed consumer prices remained flat when assessed on an annualised basis, missing market estimates for a 0.2% increase and when coupled with a 5.4% contraction in producer prices, fueled fears the economic recovery has stalled.

Amid a backdrop of weaker risk appetite, the AUD tracked toward intraday lows at US$0.6630, before finding support in a weaker US dollar. The dollar could not maintain the risk-off momentum enjoyed following the China data as treasury yields moved lower, back toward the lows seen in the wake of last week's softer-than-anticipated payroll print.

With the USD giving up ground against most major counterparts, the AUD bounced back through US$0.6650, tracing back toward US$0.6670, as our attentions turn to domestic business and consumer confidence analysis ahead of a US NFIB business sentiment report and Wednesday’s all-important CPI inflation update.

We expect ranges will be well contained leading into US CPI data with the AUD tracking between US$0.6580 and US$0.6730.

Key Movers

On Monday the US dollar enjoyed mixed fortunes through trade, advancing against commodity-led currencies and major counterparts amid weaker-than-anticipated China data. In a risk-off move the US dollar index climbed toward intraday highs as the AUD, NZD and CAD all fell. Softer China inflation data weighed on risk sentiment and key commodity prices.

Iron ore led commodity losses amid concern for demand and elevated supply following an upturn in exports leaving Australia. With the USD poised to start the week on the front foot, fortunes flipped and the dollar retraced early gains, weighed down by a drop in 2 and 10-year treasury yields. US Treasury yields moved lower, tracking back toward Friday’s post-non-farm payroll low.

The euro and GBP tracked higher on the heels of the weaker dollar, while the yen continued its recovery forcing the dollar back below 142. Our attentions turn now to an NFIB business sentiment survey ahead of Wednesday’s all-important inflation update. With Fed commentary and Peak Rate expectations consistent with at least two more rate hikes, the June inflation report will prove pivotal in shifting sentiment and elevating calls for the Fed to bring forward the end of its tightening cycle.

Expected Ranges

  • AUD/USD: 0.6580 - 0.6730 ▼
  • AUD/EUR: 0.6020 - 0.6120 ▼
  • GBP/AUD: 1.9020 - 1.9320 ▲
  • AUD/NZD: 1.0700 - 1.0800 ▼
  • AUD/CAD: 0.8780 - 0.8920 ▲