AUD – Australian Dollar
The Australian dollar tracked sideways through much of Wednesday, maintaining a familiar narrow handle as price action across major currencies remained larger muted. With little of note to drive direction through the domestic session, the AUD edged toward intraday highs at 0.7761 before a swift correction toward 0.7730 as the USD reversed the day’s early falls amid a hint of risk aversion and volatility across bond markets. Global rates fell overnight, with no obvious catalyst. US 10-year treasury yields fell 6 basis points with losses spilling over into other assets as German Bunds slipped to their lowest level since April. It appears markets are positioning themselves ahead of tonight’s all-important US CPI data print and ECB policy update.
Markets have already priced in a staggering 4.7% jump in year-on-year inflation and anything beyond 5% could well re-ignite inflation fears as the debate as to whether the current activity in prices is transitory or systemic of a wider issue continues to rage. The inflation outlook remains critical in determining short term AUD direction and has been a key factor dragging the AUD lower through the last 6 weeks. Tonight’s print could well shape the direction of the AUD through the coming month/s.
Price action across major currencies offered little to excite investors through trade on Wednesday as the USD struggled to move off multi-year lows and investors appeared reluctant to extend positions ahead of tonight’s all-important inflation print. While movement among G10 currencies was confined to +/- of 0.3% there were still standout underperformers on the day. The CAD retreated in the wake of the Bank of Canada monetary policy statement. The BoC left all policy settings unchanged and reiterated the same forward guidance on rates, failing to build on last month’s hawkish shift.
The GBP was the other underperformer, slipping toward the bottom of recent ranges and touching lows at 1.4110. Sentiment for sterling shifted as the EU looks set to introduce sanctions if the dispute over Northern Ireland cannot be resolved.
Our attentions turn now to US CPI print and the ECB policy meeting. We are keenly attuned to any print above 5% year-on-year and commentary from ECB president Lagarde that suggests the ECB may taper its bond purchases in Q3 having frontloaded purchases through Q2.
AUD/USD: 0.7650 – 0.7830 ▲
AUD/EUR: 0.6250 – 0.6360 ▲
GBP/AUD: 1.8020 – 1.8440 ▼
AUD/NZD: 1.0705 – 1.0790 ▲
AUD/CAD: 0.9260 – 0.9390 ▲