AUD wobbles as key commodity prices continue to fall
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Daily Currency Update
The Australian dollar is weaker this morning, giving up US$.66 amid a broadly stronger US dollar. US headline and core inflation increased 0.2% in July, printing in line with market estimates and ensured the annual pace of inflation would fall to its slowest annual pace in almost 3 years. With inflation on a broadly downward trend, expectations for a September rate cut are fully priced in. The question now is, will policymakers cut by 25 or 50 basis points? While there was some volatility around the release price action was somewhat subdued. With the AUD on the back foot following elevated concerns surrounding Chinese Steel production and a further slide in steel and iron ore prices, the CPI print was not enough to drag the AUD higher and it opened this morning back below US$0.66 at US$0.6595.Our attentions now turn to local employment data. We expect a continued cooling in the labour market and an uptick in unemployment for July. A significant softening in labour market activity could amplify calls for the RBA to bring forward a rate cut and add further downward pressure on the AUD. A strong read could give policymakers license to leave rate higher for longer and may help propel the AUD back above US$0.66.
Key Movers
Price action across global markets was mixed following the latest US CPI inflation print. Headline and core inflation printed in line with expectations and slowed to their slowest annual pace since 2021. Inflation in the US remains on a downward trend and when coupled with a cooling labour market, gives the Fed license to being cutting rates in September. The question now is, how aggressive will the Fed be? Markets are pricing a 40% chance of a 50-point cut and much will come down to August payrolls data. Further softening in the labour market will only amplify recession fears and elevate calls for the Fed to act quickly. With FOMC policy expectations central to near term market direction, we can expect ample volatility through the coming weeks as markets respond to key macro-economic indicators. Our attentions today shift to retail sales and jobless claims.In other news, UK inflation was softer than expected, prompting a downward correction in UK gilt yields as markets firm bets for Bank of England policy easing and a rate cut in November. With the GBP lower, the euro outperformed, edging above 1.10 and holding gains through the open this morning.
Expected Ranges
- AUD/USD: 0.6550 - 0.6680 ▼
- AUD/EUR: 0.5950 - 0.6050 ▼
- GBP/AUD: 1.9300 - 1.9500 ▲
- AUD/NZD: 1.0900 - 1.1100 ▲
- AUD/CAD: 0.9000 - 0.9100 ▼