Home Daily Commentaries AUD unable to hold gains as US inflation pressures continue to ease

AUD unable to hold gains as US inflation pressures continue to ease

Daily Currency Update

While the AUD opens this morning in much the same position as this time yesterday there is ample to digest as markets absorb and respond to the latest US CPI report. A largely benign print in line with market expectations amplified calls for the Fed to end its tightening cycle. Both headline and core CPI rates rose by a rounded 0.2% bringing the annual inflation rate down to 3.2%, while core inflation fell to 4.7%. The USD fell sharply in response to the report as markets rushed to price in a neutral policy setting through the end of the year. The print reinforced expectations further tightening is unnecessary, and the AUD lurched back above US$0.66, marking intraday highs at US$0.6610. The AUD was however unable to retain gains leading into this morning’s open amid ongoing concerns surrounding the state of the Chinese economy. Negative news continues to spill out of China as reports Country Garden Holdings, a major property developer, missed a coupon payment this week and risks defaulting on its loan obligations. Concerns this will cause a run on the sector are real and officials have convened an urgent meeting today in a bid to contain contagion. With the yuan under pressure the AUD gave back the post CPI gains, sliding below US$0.6550 to open at US$0.6515.

Our attentions remain with China, while US PPI data, consumer sentiment, and inflation expectations data dominate the docket into the weekly close.

Key Movers

Markets responded quickly to the latest US CPI inflation report, driving treasury rates lower and forcing the USD to give up three quarters of a percent. Inflationary pressures continue to ease in the US with the annual rate of inflation falling to 3.2%, while most importantly core inflation, a measure that has proved stubbornly resilient to tightening monetary policy, also eased through July. Analyst moved to price out a rate hike in September and now only expect 8 basis points of additional tightening leading into year end, all but affirming expectations the Fed has reached the peak in this monetary policy cycle. The initial USD weakness did not extend through the rest of the session though with markets paring losses. The DXY index actually closes the day higher as the JPY gave up 0.7%, the euro failed to hold above 1.10, while the GBP crashed through 1.27 to ark session lows at 1.2675.

Our attentions turn now to China’s Securities Regulatory Commission and plans to meet with property developers in a bid to control contagion after a major developer defaulted on a coupon payment. Sustained ongoing uncertainty coupled with rising concerns surrounding the European growth outlook have weighed on risk through the last 10-14 days and are likely to present headwinds for risk sensitive currencies leading into the weekly close.

Expected Ranges

  • AUD/USD: 0.6480 - 0.6620 ▼
  • AUD/EUR: 0.5900 - 0.6000 ▼
  • GBP/AUD: 1.9280 - 1.9580 ▼
  • AUD/NZD: 1.0750 - 1.0850 ▲
  • AUD/CAD: 0.8720 - 0.8850 ▲