US bond yields and the US dollar fell after data showed US core inflation was not quite as strong as expected. Commodities and equities had a positive session, the S&P500 up 0.2% to a fresh record high. The US dollar index is down 0.2% on the day, weakening against all the majors. EUR rose from 1.1706 to 1.1753. USD/JPY fell from 110.80 to 110.31. AUD rose from 0.7323 to 0.7389. NZD rose from 0.6991 to 0.7062. AUD/NZD fell from 1.0480 to 1.0457 – the lowest since December 2020. US 2yr treasury yields fell from 0.25% to 0.21%, while the 10yr yield fell from 1.37% to 1.30% and is currently at 1.34%. A strong 10yr auction late in the session followed the CPI data.
Commodities, Brent crude oil futures rose 1.2% to $72, copper rose 1.6%, and gold rose 1.3%. Iron ore rose 2.9% to $166.
Overnight Currency Range
AUD/USD 0.7324 0.7389
EUR/USD 1.1706 1.1755
GBP/USD 1.3804 1.3887
USD/JPY 110.31 110.8
NZD/USD 0.6985 0.7060
USD/CAD 1.2490 1.2548
USD/CNH 6.4727 6.493
AUD/JPY 81.07 81.58
AUD/NZD 1.0458 1.0483
AUD/USD consolidates recent gains in a 25-pip range below 0.7390, around 0.7375 at the start of Thursday’s Asian trading session. The pair earlier cheered the US dollar pullback, mainly on the US CPI numbers, but the bears keep reins as covid concerns haunt bulls. The US Dollar Index (DXY) refreshed the highest levels since early April before stepping back from 93.19 after the US Consumer Price Index (CPI) data backs the Federal Reserve (Fed) in saying that the inflation hike is “transitory”. That said, the headline CPI remained unchanged at 5.4% YoY versus 5.3% forecast whereas the core CPI, ex Food & Energy, eased to 4.3% from 4.5% previous readouts.
In addition to the mixed data, comments from the Fed policymakers also favour the market sentiment, as well as the AUD/USD prices. Notable among them were statements from Fed Reserve Bank of Kansas City President Esther George who said, “the time has come to dial back the settings.” It should be noted, however, that the policymaker ruled out rate hikes while also saying, the road ahead to policy normalization “is likely to be a long and bumpy.”
While the receding fears of tapering and rate hikes favour the AUD/USD buyers, at least for now, Melbourne’s extension of the virus-led lockdowns for seven days and an absence of easing in the infections from New South Wales (NSW) challenge the optimism. Alternatively, the US data also suggests a five-month high death toll and covid figures from China don’t step back in portraying the fears of virus resurgence and economic challenges.
On a different page, the passage of the infrastructures spending plan from the Senate also favours the risk-on mood but the Republican Party’s readiness to stop Democrats when they start negotiating the budget and debt limit questions the optimists. Even so, US President Joe Biden recently said that he is not worried about the debt ceiling as Republicans will not let the US default.
Moving on, Australia Consumer Inflation Expectations for August, forecast 3.8% versus 3.7% prior, will be important to watch for the immediate trading direction. However, major attention will be given to the headlines concerning COVID-19 ahead of the US Producer Price Index (PPI) for July and Weekly Jobless Claims data.
AUD/USD rebound battles 21-DMA around 0.7375, a break of which needs to cross monthly resistance line near 0.7400 and a six-week-old horizontal area surrounding 0.7410-15 to convince the bulls. Alternatively, a daily closing below 0.7315 will quickly direct the pair bears to attack the yearly bottom of 0.7288.
Event Risk Data Today
Australia: August MI inflation expectations will gauge households’ views on the recent strength seen in food, fuel and dwelling prices.
New Zealand: Although the housing market has somewhat cooled since loan-to-value restrictions were reimposed in March, indicators suggest that the July REINZ house sales and prices will reflect a reasonably active housing market.
RBNZ’s Q3 Survey of inflation expectations will continue to push higher this quarter.
UK: The market is forecasting a 4.8% gain for Q2 GDP, with a robust outlook ahead given the significant easing of restrictions in July. Ahead of the June update, the trade balance has begun to stabilise following a period of Covid/Brexit volatility.
Euro Area: The market anticipates a -0.2% decline for June industrial production; the switch from goods consumption to services spending may see a more subdued profile for output going forward.
US: The July PPI will offer insight into whether upstream price pressures are showing signs of easing (market f/c: 0.6%). Furthermore, initial jobless claims for the week ended 7 August should print around 375k, with labour shortages and the cessation of unemployment benefits to accelerate the downtrend.