AUD - Australian Dollar

The 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.

Key Movers

Activity across currency markets was largely muted on Thursday as investor’s reaction to the US CPI print and ECB policy meeting were well contained. Analysts largely ignored the US CPI data release having already priced in a bumper print and seemingly saw little within the underlying fundamentals that would force the Fed to shift its current view that inflation is transitory. Markets drove gains across risk assets, suggesting there is an expectation monetary policy will remain accommodative for some time. The Great British pound benefited from the weaker USD, touching highs at 1.4170, while the euro tracked sideways, unable to shake the ECB dovish review. The ECB elected to maintain its emergency level of bond buying, suggesting the market expectation for a moderation was misplaced at this time. Our attentions turn now to UK GDP and monthly activity data, ahead of a US consumer sentiment and inflation expectations data release.

Expected Ranges

AUD/USD: 0.7680 - 0.7790 ▲

AUD/EUR: 0.6290 - 0.6420 ▲

GBP/AUD: 1.8180 - 1.8440 ▲

AUD/NZD: 1.0710 - 1.0820 ▲

AUD/CAD: 0.9330 - 0.9420 ▲

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