US inflation surprise spurs overnight volatility

Daily Currency Update

The Australian dollar enjoyed a wild and volatile overnight session on Thursday, surging back above 0.72 only to relinquish gains and close the day unchanged. The AUD tracked sideways through the domestic session bouncing between 0.7160 and 0.7190 as investors sidelined major bets until after the release of US CPI inflation data for January. Another upside surprise spurred markets to firm in expectations the FOMC and Federal reserve will raise rates by 50 basis points next month. The USD rallied immediately after the data was printed, forcing the AUD toward intraday lows at 0.7150 before finding support and pulsing through 0.72. Curiously markets turned on the USD forcing the world’s base unit lower on the session. The AUD rallied to touch intraday highs at 0.7250 before correcting into this morning’s open, where it now buys 0.7160 US cents. With Thursday’s key risk event now behind us and little of note on today’s macroeconomic ticket, we expect little change in the underlying AUD narrative.  We are again range bound between 0.70 and 0.73 US cents and we anticipate markets will maintain a narrow trading handle into next month's Fed meeting, with direction lead by amendments in expectation for Fed policy change.