AUD plumbs new 2023 low following uptick in US inflation

Daily Currency Update

The Australian dollar plumbed fresh 2023 lows through trade on Thursday following weaker than anticipated domestic employment data and stronger than anticipated US PPI inflation data. Employment growth slowed in January and the unemployment rate lifted to 3.7%. The second consecutive miss in monthly jobs growth and the marginal uptick in unemployment can likely be explained by seasonal adjustments, however the softer print has raised some concerns the steam is now running out of the labour market. The AUD and domestic rates fell in the wake of the data update setting the trend for the rest of the day.

While traditionally considered a second tier data set, US PPI inflation is typically ignored with markets preferring to focus on the traditional Consumer Price Index, however January saw both headline and core PPI figures jump significantly, continuing the surprise reversal in trend across US macroeconomic data points. The upswing in producer prices further cemented expectations the path toward the Fed’s inflation target of 2% could be a long and drawn out one. US yields and rates pushed higher following the data update and the AUD fell to intraday lows at US$0.6840. There appears little sign the Fed will pause or slow the pace of rates hikes through the next two months with the likelihood of a third hike now being priced into near term yield curves. The AUD managed to claw back some ground through the latter part of the overnight session yet remains below US$0.69 on open this morning.

With a largely empty macro ticket closing out the week our attentions turn to Fed speakers for direction.