New day, same old narrative. AUD well and truly range bound

Key Movers

Another quiet day across currency markets with most majors trading within a narrow 0.2% band when measured back against the US dollar. The Canadian dollar was the day's big mover finding support following a stronger than expected CPI inflation print. May CPI numbers printed a year-on-year increase of 2.9%, up from 2.7% in April and 0.3% above market estimated. The surprise increase in inflation was driven by the service and health sectors and forced analysts to unwind bets for a July rate cut. Markets now estimate there is just a 1 in 5 chance the Bank of Canada cuts rates in July, instead of firming bets for a September rate adjustment. With Canadian yields rallying the Canadian dollar touched intraday highs at $US0.7330. The upturn was however short-lived and USD momentum forced a retracement and move back toward US$0.7315. While there was no headline US data on the docket ongoing mixed messaging from Fed officials and US data sets ensured the outlook around the timing and trajectory of US rate cuts remains clouded. Commentary from two key Fed officials was at loggerheads with Member Bowman suggesting a rate cut this year may be too soon and could incite a rebound in inflation and policy increase in the future, whereas Member Cook suggested that it will be appropriate to reduce rates at some point with the timing determined by how data evolves. The contrasting comments coupled with a downturn in consumer confidence and stronger labour market conditions perfectly illustrate the conundrum facing markets. The timing and pace of monetary policy change is still very much unknown and until a clear path emerges ranges across major currencies are likely to be well contained.