AUD crumbles under weight of US inflation surprise
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Daily Currency Update
An upside surprise in US CPI data has sapped the wind from the Australian dollar's sails, forcing a near 2% correction, moving back below US$0.65. After testing US$0.6650 through trade on Tuesday, the AUD was the worst-performing and hardest-hit major following the release of US inflation data for March. Markets expected inflation pressures would moderate and a miss on expectations was skewed to the downside, so the stronger-than-expected read had a greater impact across financial markets. The AUD tumbled to a low of US$0.6499 with losses exacerbated by a steep decline in the Chinese yuan and a correction in commodity prices. US dollar gains saw industrial metals retreat, while gold gave up 0.6%. Just when we thought markets were poised to break outside recent narrow ranges, market data dragged investors back in and propped up the US dollar.Our attentions now turn to China CPI and PPI data for March while US PPI data and the ECB policy meeting dominate the offshore ticket. With the AUD now on the back foot, we are looking for any signal to suggest the reflation narrative will again help lift our local unit back toward the top end of recent ranges. Until then AUD should trade within a narrow range.
Key Movers
The US dollar outperformed all counterparts through trade on Wednesday after US CPI data for March surprised to the upside. Markets expected a 0.3% uptick in price pressures to close out the first quarter with bets on a miss skewed to the downside and a 0.2% read. Instead, a 0.4% uptick ensured the annual rate of inflation held steady at the February level of 3.8%, instead of falling to 3.7% as expected. US treasuries leapt across the curve, while equity markets faltered and the USD DXY index rallied 1%. The Euro slipped back below 1.08 and 1.0750, while the GBP crashed through 1.27 and 1.26. The Japanese yen gave up 152 and is now firmly entrenched within interventionist territory. Given the move has been inspired by the run-up in US yields and not domestic drivers, it will be interesting to see if the MOF and BoJ intervene or let the rally run its course. Either way USDJPY volatility at these levels is to be expected.Our attentions now turn to US PPI data and the ECB policy meeting. We expect the ECB will leave rates on hold at 4.5% shifting our attention to the post-meeting statement and press conference for any signal the governing council is moving toward a June rate cut.
Expected Ranges
- AUD/USD: 0.6450 - 0.6550 ▼
- AUD/EUR: 0.6000 - 0.6100 ▼
- GBP/AUD: 1.9100 - 1.9300 ▲
- AUD/NZD: 1.0850 - 1.0950 ▼
- AUD/CAD: 0.8880 - 0.9000 ▼