US equities rose to fresh record highs following inflation data which was consistent with the Fed’s “transitory” judgement. The S&P500 is up 0.5%, bond yields are lower, and risk-sensitive currencies are higher. The ECB maintained its policy settings. US 2yr treasury yields slipped from 0.16% to 0.15%, while the 10yr yield briefly spiked from 1.50% to 1.53% after the CPI data and then slumped to 1.45% - a three-month low. Traded 10yr inflation, though, bounced off a four-month low of 2.31% to 2.37%. Australian 3yr government bond yields (futures) fell from 0.18% to 0.15%, while the 10yr yield rose from 1.43% to 1.50% ahead of the CPI data but then retraced to 1.43%.
Commodities, Brent crude oil futures rose 0.3% to $72.02, copper fell 0.9%, and gold rose 0.5%, while iron ore rose 1.1% to $215.05.
Overnight Currency Ranges
AUD/USD 0.7719 0.7764
EUR/USD 1.2143 1.2194
GBP/USD 1.4074 1.4174
USD/JPY 109.41 109.80
NZD/USD 0.7165 0.7212
USD/CAD 1.2070 1.2127
USD/CNH 6.3780 6.3947
AUD/JPY 84.60 85.01
AUD/NZD 1.0760 1.0781
AUD/USD holds onto the previous day’s recovery moves from the weekly bottom around 0.7755-50 amid the early Friday morning in Asia. The quote refreshed week’s low in a quick reaction to the US Consumer Price Index (CPI) data before adding more than it lost to head for the first daily gain in three days, not to forget snapping a two-week south-run. The sustained weakness of the US Treasury yields stopped the US dollar from recovering despite strong inflation. This in turn pushed equities and commodities, also helping the Aussie pair.
Although the key US economics unveiled higher-than-expected price pressure into the world’s largest economy, markets offered a little reaction the previous day. The reason could be traced to the fact that the US Federal Reserve (Fed) has already signalled this to happen and termed it “transitory”. That said, the headlines US CPI marked the fastest jump since 2008 to 5.0% YoY while the Core CPI rallied to the highest in 30 years with a 3.8% figure.
It’s worth noting that the European Central Bank (ECB) matched wide market forecasts to keep the policy settings unchanged but revised up economic projections. As per the latest ECB guide, the GDP is likely to grow by 4.6% this year (up from 4.0%) and 4.7% in 2022 whereas inflation is upwardly revised to 1.9% for 2021 and 1.5% for 2022.
Elsewhere, the news suggesting US bipartisan Senators’ agreement over the infrastructure deal and the Sino-American Commerce Ministers’ positive hints for the trade and investment ties also back the AUD/USD moves.
It should, however, be noted that the chatters over the UK and the US-backed push to the Group of Seven (G7) allies to recall investigation over the covid origin and differences with China probed the market optimism on Thursday.
Given the latest news over the US infrastructure spending plan approval, coupled with the start of the G7 meeting, AUD/USD may have a volatile day despite a lack of major data/events at home. On the other hand, US Michigan Consumer Sentiment Index for June, expected 84 versus 82.9 prior, will decorate the calendar.
The AUD/USD remained in a tight 0.7719/64 range overnight with demand still expected ahead of 0.77c while we can still expect topside resistance remains significant ahead of 0.7815.
Event Risk Data Today
New Zealand: The strong trend is set to continue in the May update of the manufacturing PMI.
US: The Uni. Of Michigan consumer sentiment survey is expected to reflect the ongoing economic recovery, rising further to 84.2 in June.