Markets sidelined ahead of important inflation data

AUD - Australian Dollar

The Australian dollar tracked sideways through trade on Tuesday amid rising concern transitory inflation will morph into longer-run price pressures. Elevated commodity prices and a shortage of labor supply across the global economy have prompted an uptick across key inflation indicators like PPI and PMI data sets, raising fears Central banks will be forced to unwind accommodative policy platforms ahead of a full economic recovery. The AUD maintained a narrow range, bouncing between 0.7820 and 0.7855 as investors look to Wednesday’s US consumer price index print. While CPI data isn’t the Federal Reserves preferred measure of inflation, it will provide a key insight into how rising input costs are translating through to end consumer prices. A strong read could fuel calls for the FOMC to end its blindness to rising near-term inflation. With global growth expectations improving and the domestic economic recovery ahead of schedule (there was little to no reaction across currencies to last nights budget), inflation concerns are critical in shaping near term AUD direction.

Key Movers

Price action across currency markets was largely muted through trade on Tuesday as investors grapple with near-term inflation pressures and long-term expectations of economic recovery. The dollar, euro, yen and sterling offered little to incite excitement as markets appear content sitting on the sideline ahead of today’s all-important US CPI print. Input costs have risen sharply in recent months as increased commodity prices and rising labor costs have prompted an uptick across PPI and PMI indicators. While not the Fed’s preferred measure of inflation, analysts will be keenly attuned to understand how rising input costs are impacting end consumer prices. The Fed and its brethren of core central banks have been steadfast in their commitment to maintaining accommodative policy, looking through near-term price pressures. However, mounting inflation could drive hurried changes to monetary policy. Inflation concerns remain the key hurdle governing near-term direction across currency markets. Sustained pressure will weigh on the reflation narrative, hampering gains across traditional risk assets.

Expected Ranges

AUD/USD: 0.7730 - 0.7930 ▲

AUD/EUR: 0.6390 - 0.6490 ▼

GBP/NZD: 1.9280 - 1.9620 ▲

AUD/NZD: 1.0720 - 1.0830 ▲

AUD/CAD: 0.9450 - 0.9530 ▲