AUD steady in face of stronger US inflation input data
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Daily Currency Update
The Australian dollar maintained a narrow trading band through Tuesday, bouncing between US$0.6580 and US$0.6630. Having tracked sideways through the domestic session the AUD crept upward leading into the Federal budget address pushing off US$0.66 to mark highs at US$0.6610, maintaining gains through the early part of the overnight session before stronger than expected US PPI data sent the AUD lower. Headline PPI rose 0.5% versus market expectations of just a 0.2% increase, elevating expectations the Fed will be forced to delay planned interest rate cuts. The AUD fell to an intraday low at US$0.6580 before finding support as markets unwound the knee-jerk response and forced the USD lower on the day. Having pushed toward intraday highs just short of US$0.6630 and opened this morning buying US$0.6627.Our attention now turns to local Q1 wage data and the release of the Wage Price Index. We expect wages to have grown 4.2% year on year. A print above consensus may amplify calls for the RBA to hike rates again. Offshore US CPI data for April will prove pivotal in shaping near-term direction. After yesterday's hot PPI report policy officials will be looking for signs inflation pressures are easing. A stubbornly high inflation read could see rate cut expectations pushed well into Q4 and possibly roll into 2025.
Key Movers
The US dollar enjoyed mixed fortunes through trade on Tuesday closing lower on the day against most majors. Having tracked sideways early the dollar jumped higher following stronger than anticipated US PPI data for April. Core PPI showed a 0.5% increase, well ahead of market estimates for a 0.2% advance. With key PPI components feeding into the core PCE deflator, the stronger print has elevated fears of an upside risk for inflation and tonight’s CPI print. The dollar rallied following the data release before retracing gains after Fed Chair Jerome Powell affirmed his view that “interest rates are high enough” and “we need to be patient and let restrictive policy do its work”. Powell’s comments doused expectations the Fed may raise rates again and force markets to unwind USD gains. The USD is lower this morning against the euro and GBP. UK Labour market data saw wages rise 6% on a quarterly year-on-year comparison, printing above market expectations yet countered by softening jobs growth and an uptick in the unemployment rate. Market pricing for a Bank of England rate cut was largely unchanged. The yen is weaker again this morning as markets continue to test the resolve of the Bank of Japan and Ministry of Finance.Our attention now turns to tonight’s all-important US CPI print.
Expected Ranges
- AUD/USD: 0.6520 - 0.6680 ▲
- AUD/EUR: 0.6050 - 0.6150 ▼
- GBP/AUD: 1.8800 - 1.9100 ▼
- AUD/NZD: 1.0920 - 1.1020 ▼
- AUD/CAD: 0.9000 - 0.9100 ▲