US CPI in April rose by a surprisingly large 0.8%m/m (est. +0.2%m/m) to 4.2%y/y (est. +3.6%y/y) - the largest monthly gain since 2009. Core measures also surprised, ex-food and energy up 0.9%m/m (est. +0.3%m/m) to 3.0%y/y (est. 2.3%y/y) – the largest monthly gain since 1981. Among the components, the largest surprise was the record 10.0%m/m rise in used vehicle prices, but gains were broad-based. US inflation data boosted bond yields and the US dollar, and sent equities tumbling. The S&P500 is currently down 2.1%, back at early April levels.
Commodities, Brent crude oil futures rose 0.7% to $69.05, copper fell 0.9%, and gold fell 1.0%, while iron ore rose 2.3% to a fresh record high of $233.70.
Overnight Currency Ranges
AUD/USD 0.7719 0.7843
EUR/USD 1.2065 1.2152
GBP/USD 1.4050 1.4154
USD/JPY 108.62 109.64
NZD/USD 0.7152 0.7274
USD/CAD 1.2046 1.2132
USD/CNH 6.4252 6.4618
AUD/JPY 84.61 85.25
AUD/NZD 1.0773 1.0804
AUD/USD: Pressured towards 0.7700 after US inflation showdown
AUD/USD bears catch a breather, keeping the reins at the weekly bottom around 0.7720, during early morning in Asia. Having begun Wednesday on a back foot, mainly on the pre-CPI caution and geopolitical risks, the Aussie pair dropped the most since late February after the US Consumer Price Index (CPI) jumped above the feared forecast.
A bumpy road for the Fed?
Wednesday’s CPI not only crossed the 3.6% YoY forecast but doubled more than the US Federal Reserve’s (Fed) 2.0% target while flashing a 4.6% figure, reaching the highest since 2008. It should, however, be noted that the details suggest a heavy run-up in the used car and truck even as other components also rose. Although the inflation data raised doubts over the US central bank’s future actions and ability to convince markets amid expectations of further stimulus, the policymakers may rely on CPI details to defend easy money.
Elsewhere, Australia signed a deal for 25 million jabs with Moderna as the nation battles vaccine shortage while having Pfizer-BioNTech and AstraZeneca in their stores. Further, geopolitics in Gaza and rising covid woes in Asia offer extra catalysts to direct the markets but failed versus the key US data. Against this backdrop, US equities drop for the third consecutive day whereas the US 10-year Treasury yields jumped the most in two months.
Looking forward, US Weekly Jobless Claims and Producer Price Index (PPI) for April may offer extra direction to the US dollar while Aussie Consumer Inflation Expectations for May, forecast 3.6% versus 3.2%, could provide fresh impulse. Above all, chatters surrounding the covid, stimulus and Fed become the key.
The fall in the AUD/USD overnight has cleared the order book and the next bout of demand isn’t expected until we reach 0.7650 while offering interest has intensified and rests back toward 0.7810/15.
Event Risk Data Today
Australia: The May update of MI inflation expectations will be released. Expectations jolted lower in April and are firmly below pre-COVID levels.
New Zealand: Markets expect the April food price index will rise 0.8% on higher fruit and vegetable prices. The April REINZ report will be the first comprehensive read on the strength of the housing market since the Government’s announcement in late March, which significantly tightened up the tax treatment of property investors. Indicators so far suggest that house sales were still perky through April, although auction clearance rates fell. The key new information will be whether prices have continued to be bid up at the white-hot pace seen in recent months.
US: The April PPI expected to lift 0.3% on rising commodity input prices. Initial jobless claims have printed fresh pandemic lows in recent weeks – the market is looking for another fall to 490k in the week ended May 8. The FOMC’s Waller and Bullard will speak.