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AUD falters. Are elevated commodity prices starting to weigh on the currency?

Wednesday 9 June, 2021

Daily Currency Update

AUD - Australian DollarThe Australian dollar underperformed through trade on Tuesday, slipping back below 0.7750 and touching intraday lows at 0.7734. There appears no obvious catalyst for the shift in direction as price action across financial markets remained muted with investors apparently content in treading water ahead of tomorrow’s all important US CPI print. Commodity currencies in general underperformed on Tuesday, despite a broader strengthening in commodity prices. The Bloomberg commodity index advanced 0.6%, closing in on a 6-year-high, yet the AUD, CAD and NZD all tracked lower. A possible explanation could be sustained inflation fears ahead of key inflation data. Rising commodity prices have been a key component in accelerating a rise in input costs and a subsequent flow on into consumer price rises. Fears higher commodity prices will continue to spill over and fuel ongoing inflationary pressures are beginning to weigh on short term risk appetite and dampen demand for the AUD. Our attentions remain squarely affixed to US CPI data as the key catalyst driving direction this week.

Key Movers

Outside a correction in commodity currencies, price action across majors was largely muted Tuesday, with both the EUR and GBP maintaining a narrow handle as markets appear content in treading water ahead of tomorrow’s all important US CPI print. Having outperformed in April, investors are anxious to understand if heightened inflationary pressures are indeed transitory or evidence of an emerging trend. Leading indicators show supply constraints, elevated commodity prices and increasing input costs have continued through Q2 and could well spill over into a broader CPI increase. Any uptick outside expectations will likely drive another risk-off run as the prospect of tighter monetary policy to combat inflation threatens to derail the recovery. Our attentions today turn to Chinese CPI and PPI as possible markers of global inflation, while the Bank of Canada could prompt some price action. At its last meeting the Bank of Canada tapered bond purchases and brought forward its guidance on interest rate adjustments and investors will be keenly attuned for any further change in policy. We expect the BoC will sideline further adjustments and await further market data before altering monetary policy again.

Expected Ranges

  • AUD/USD: 0.7630 - 0.7830 ▼
  • AUD/EUR: 0.6290 - 0.6370 ▼
  • GBP/NZD: 1.8120 - 1.8440 ▲
  • AUD/NZD: 1.0720 - 1.0780 ▲
  • AUD/CAD: 0.9260 - 0.9430 ▼