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Aussie lurches higher as markets unmoved by surge in US consumer Prices

Thursday 13 January, 2022

Daily Currency Update

The Australian dollar rose sharply through trade on Wednesday, extending through 0.7250 to test 0.73 US cents. With little of note on hand to drive direction through the domestic session, the AUD tracked sideways as investors withheld bets ahead of key testimony from Fed President Jerome Powell and an all-important CPI inflation print. Consumer prices posted their biggest rise in almost 40 years, up 7% year-on-year, as sustained supply chain bottlenecks and recovering demand continue to drive the cost of goods and services higher. Markets had largely priced in the record print and, with few exceptions to expectations, focus shifted back to commentary from Fed Chair Jerome Powell. With markets now firmly pricing a March rate hike, investors looked to Powell for affirmation policymakers will seek to introduce 4 rate adjustments through 2022. Powell, however, failed to meet the market, offering little beyond recent Fed commentary. The AUD capitalised on the ensuing USD correction, jumping off 0.7210 to mark intraday highs at 0.7290. With key risk events now behind us, our attentions turn to US PPI data and unemployment claims Thursday and Key Retail Sales data Friday as catalyst for direction into the weekend.

Key Movers

The US dollar fell for a second consecutive day, giving up recent highs and tumbling toward a two-month low. Having patiently awaited December CPI data, investors appeared underwhelmed as reports showed prices, despite posting their largest annual gain in almost 40 years, were largely in line with analyst expectations and offered little to re-shape or accelerate expectations for Fed policy change. Markets used the opportunity to deleverage recent USD shorts, selling down the base currency and chasing gains across commodity linked currencies and risk assets. The dollar index fell over half a percent, touching lows not seen since early November. In light of the market's reaction today, it appears many of the data points driving positive USD price action are already priced in, and the USD could struggle to maintain its recent momentum in the absence of a major move in the rates market. The correction saw the EUR surge through 1.14 to 1.1450 while the GBP jumped through 1.37 and the JPY forced the dollar back below 114.50. The question now; is this the beginning of a correction we expected wouldn’t materialise until Q2, or a minor hiccup in the recent USD resurgence?

Expected Ranges

  • AUD/USD: 0.7170 - 0.7320 ▲
  • AUD/EUR: 0.6830 - 0.6420 ▲
  • GBP/AUD: 1.8750 - 1.8930 ▼
  • AUD/NZD: 1.0580 - 1.0680 ▲
  • AUD/CAD: 0.9040 - 0.9150 ▲