AUD steady in face of higher US inflation

Daily Currency Update

AUD - Australian DollarThe Australian dollar enjoyed a modest uptick through trade on Thursday, buoyed by a downturn in US 10-year treasury yields and a softer US dollar. The AUD moved off intraday lows at 0.7720 to extend beyond 0.7750 and touch session highs at 0.7758 overnight. Currency markets largely ignored the US CPI data release despite another alarmingly high print. Headline inflation rose 5% year on year, well beyond the Fed’s target band, however closer analysis of inputs showed the primary drivers behind the steep increase in prices was an uptick in costs across areas strongly linked with the re-opening economy, suggesting price pressures may indeed be transitory. With investors driving treasury yields toward 3-month lows and chasing equities to fresh record highs, it appears markets are backing the Fed’s current view and are pricing in long run accommodative monetary policy. While the AUD remains firmly range bound, easing inflation fears open the possibility of a shift in narrative back toward long-run risk on optimism. We still expect domestic macroeconomic outperformance and stronger commodity prices will help drive the AUD toward 0.80 by the end of the year. Please be advised there will be no Australian or New Zealand commentary on Monday the 14th of June. The dealing teams will still be available through the Public Holiday and happy to answer any queries you may have.