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Alarmingly high US inflation print forces AUD lower

Thursday 11 November, 2021

Daily Currency Update

AUD - Australian Dollar

The Australian dollar continued its downward correction through trade on Wednesday, giving up supports at 0.7350 and marking fresh 1-month lows at 0.7330. Another alarmingly high US CPI print has sent shockwaves through the market as investors scramble to re-position monetary policy expectations. In a blow to those purporting a transitory assessment of price pressures, inflation rose 0.9% in October taking the annualised rate of increase above 6% to 6.2% while core CPI data was up 4.6%. The sharp increase pushes both CPI and Core CPI inflation to their highest level in 30 years and has prompted investors to again price in two rate hikes in the latter half of 2022, driving USD gains across the board. Having edged back toward 0.74 US cents, the AUD fell sharply in the wake of the CPI data release and now appears poised to test supports and a break below 0.73. With markets repricing expectations for Fed Policy expectations, our attention turns again to the RBA. Policymakers have stubbornly dismissed the rising inflationary backdrop, refusing to adjust policy to suit changing market conditions. We are keenly attuned to developing data points, poised for an RBA policy re-alignment.

Key Movers

The US dollar advanced across the board through trade on Wednesday with the dollar index up over half a percent on the day and pushing back toward year to date highs last seen in September. The shockingly high inflation read for October has prompted investors to again price in two interest rates hikes in H2 2022, pushing back on last week's dovish Fed policy stance. There is now a widespread consensus that the Fed and major central banks are in misstep with the realities of the current environment. The October CPI print illustrates this gap perfectly. Those purporting a transitory assessment of inflation pressures were dealt a heavy blow as the extension came as inflation becomes widespread, spilling beyond just a few one-off markets. With prices now rising across the board, it is clear the current policy stance is no longer fit for purpose and it seems the market is bent on front-running rate hikes regardless of central bank rhetoric and candour. The yen was hit the hardest by the correction in global rates as the USD surges toward 114, while the euro slipped below 1.15 to touch 1.1478 while sterling plunged below 1.3450 and appears poised for a break below 1.34. Our attentions today remain with the risk and inflation narrative.

Expected Ranges

  • AUD/USD: 0.7270 - 0.7420 ▼
  • AUD/EUR: 0.6350 - 0.6420 ▲
  • GBP/AUD: 1.8080 - 1.8430 ▼
  • AUD/NZD: 1.0340 - 1.0420 ▲
  • AUD/CAD: 0.9080 - 0.9220 ▼