· The US dollar index is up 0.3% on the day, and at the highest level since June 2017, the USD outperforming all the majors apart from the defensive yen. USD/JPY fluctuated between 111.75 and 112.05. EUR/USD fell from 1.1260 to 1.1192, with the main move coming in early NY trading without obvious news or data catalyst (treasuries rallied at the same time).
· AUD/USD fell from 0.7130 to 0.7081 then edged back to 0.7100. NZD fell from 0.6680 to 0.6629 – the lowest since 3 Jan – then bounced to 0.6655 in early Sydney trade. AUD/NZD slipped from 1.0685 to 1.0668.
The AUD dropped below 0.7100 on the back of USD strength in what was otherwise a largely quiet news cycle. AUD touched intraday lows at 0.7084 as US data showed an uptick in new home sales and attempted to position themselves ahead of today’s quarterly CPI print. Domestic inflation and price pressures are expected to remain soft through the first quarter, pushing calls for an RBA rate cut through the later half of the year.
While the likelihood of immediate RBA policy change was reduced last week, following the largely robust labour market print, softness across price pressures will weigh on policy makers thought processes. The lack of upward pressure on prices will likely mean wage growth remains muted and the scope for a consumer led growth recovery continues to sit beyond our near-term reach. Our attentions today remain squarely affixed to the CPI print as a key marker governing longer term monetary policy projections.
That said, we anticipate the AUD will continue to remain with recent range bounds, bouncing between 0.7000 and 0.7200.
Event Risk Today
· The RBA may be more focused on the labour market, but there is always plenty of interest in Australia’s official inflation report, with Q1 CPI data due at 11:30am Syd/9:30am Sing/HK. The median forecast on Bloomberg is 0.2%qtr, 1.5%yr overall, 0.4%qtr, 1.6/1.7%yr on the RBA core measures. Westpac looks for a slightly softer reading: 0.1%qtr, 1.4%yr overall, 0.3%qtr, 1.6%yr on the average of the 2 core measures.
· Headline inflation should be weighed by lower prices for fuel, recreation and communication, while support comes from the annual rise in education and pharmaceutical prices, plus alcohol and tobacco. Core inflation should remain subdued given moderating housing costs, sluggish wages growth and strong price competition in consumer goods. We look for traded prices to slip -0.6%qtr, non-tradeables +0.6%.
· The long-running IFO survey of Germany business sentiment is expected to show little change in April, with a headline around 100 and the usual split of the current assessment index running well above the expectations index. Feb 2019 was a 2+ year low.
· Russian President Putin will meet North Korean leader Kim Jong Un in Vladivostok. Caterpillar, Tesla and Facebook will report Q1 earnings.