The US CPI inflation update was not much stronger than expected, allowing equities to rise (S&P500 +1.0%), and the US dollar and bond yields to fall slightly. The US dollar index closed up 0.2% on the day. EUR rose from 1.1265 to 1.1324. USD/JPY fell from 113.79 to 113.23. AUD rose from 0.7142 to 0.7182. NZD rose from 0.6770 to 0.6807. AUD/NZD rose from 1.0518 to 1.0564.
US 2yr treasury yields fell from 0.73% to 0.63%, while the 10yr yield fell from 1.52% to 1.45% before closing at 1.48%. Markets fully price the first Fed funds rate hike to be in July 2022. Australian 3yr government bond yields (futures) fell from 1.12% to 1.07%, while the 10yr yield fell from 1.68% to 1.63%. Markets fully price the first RBA rate hike to be in July 2022.
Commodities, Brent crude oil futures rose 1.0% to $75, copper fell 1.1%, gold rose 0.4%, and iron ore fell 1.3% to $105.
Overnight Currency Range
AUD/USD 0.7132 0.7182
EUR/USD 1.1266 1.1324
GBP/USD 1.3188 1.3276
USD/JPY 113.22 113.79
NZD/USD 0.6771 0.6806
USD/CAD 1.2680 1.2739
USD/CNH 6.3647 6.3892
AUD/JPY 80.80 81.55
AUD/NZD 1.0504 1.0563
The AUD/USD pair gained some positive traction during the early North American session and shot a fresh daily high, around the 0.7180 region following the release of US consumer inflation figures. The headline US CPI rose 0.8% MoM in Novemberas against 0.7% anticipated and the yearly rate accelerated from 6.2% in October to 6.9%, marking the highest level since 1982. Adding to this, core inflation, which excludes food and energy prices, rose 0.5% MoM and 4.9% from a year ago, matching consensus estimates. The data reaffirmed expectations that the Fed would tighten its monetary policy sooner rather than later to contain stubbornly high inflation.
Given that markets have been pricing in the prospects for a faster policy tightening by the Fed, the US dollar witnessed a typical "buy the rumour, sell the news" kind of trade and weakened a bit. This, along with a generally positive tone around the equity markets, benefitted the perceived riskier aussie and provided a modest lift to the AUD/USD pair. That said, any meaningful positive move still seems elusive, warranting some caution for bullish traders.
As markets digest the latest macro data, the focus now shifts to the upcoming FOMC monetary policy meeting on December 14-15. Heading into the big central bank event risk, markets might refrain from placing aggressive bets. Nevertheless, the AUD/USD pair remains on track to end the week on a positive note and snap five successive weeks of the losing streak.
The AUD/USD closed last week at 0.7173 with demand still resting ahead of the recent low of .6995 while offering interest is thinner but remains above 0.7200.
Event Risk Data Today
NZ: REINZ house sales should reflect recent developments in the housing market over November, including the tightening of loan-to-value restrictions and the sharp rise in mortgage rates, cooling house price growth in coming months. November’s Business NZ PSI is expected to remain soft with activity restrictions still in place. Meanwhile, net migration is set to remain weak in October given border restrictions.
Japan: The reduced risks associated with delta over Q4 should continue to support large manufacturers sentiment in the Tankan survey.