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USD lags after lower than expected inflation numbers

Daily Currency Update

USD - United States Dollar

Demand for the US dollar fell across the board after inflation data released on Tuesday missed market expectations. The US Dollar Index was down 0.15%, trading around 92.49 at the time of writing.

Both headline and core inflation undershot market expectations for August, with core inflation correcting off 30-year highs and moderating back to 4%. Key components to last month's rise retreated through August as the Delta variant continues to rip through the US and hold back domestic demand. The softening in CPI data highlighted the challenges facing a broader recovery and have forced some analysts to extend the timeline of recovery.

Key Movers

UK inflation data was posted on Wednesday morning and was the highest reading since March 2012. The year-on-year inflation figure climbed from 2% to 3.2%. This was largely attributed to the 2020 Eat Out to Help Out scheme implemented by the government. The pound climbed 0.22% against the dollar after the data, trading around 1.3836 at the time of writing.

The Australian dollar was the weakest of major currencies through trade on Tuesday, giving up 0.7% amid dovish commentary from RBA Governor Philip Lowe and a broader risk off tone. While maintaining an expectation the economy will rebound swiftly once lockdowns are removed, Lowe pushed back on market expectations for a rate hike in 2022 and H1 2023. AUDUSD was up 0.09% this morning, trading at 0.7324.

The Canadian dollar strengthened against the US dollar after data showed that Canada’s annual inflation rate rose to 4.1% in August, the highest level in 18 years. Economists were only expecting a 3.9% annual gain. This acceleration was boosted by increased gasoline prices and new home prices, according to Statistics Canada.

Expected Ranges

  • EUR/USD: 1.1801 - 1.1831 ▲
  • GBP/USD: 1.3793 - 1.3857 ▲
  • AUD/USD: 0.7306 - 0.7338 ▲
  • USD/CAD: 1.2637 - 1.2707 ▼