Australian Dollar: Mixed CPI backs extended RBA pause – BBH

FXStreet Insights Team FXStreet

Brown Brothers Harriman’s (BBH) Elias Haddad notes AUD/USD slid toward 0.7136 and is expected to settle closer to 0.7000, consistent with Australia–US 2‑year yield spreads. Mixed April Consumer Price Index (CPI), with softer headline but firm trimmed mean, saw Reserve Bank of Australia (RBA) hike pricing pared back and leaves risks skewed toward a longer pause in the tightening cycle.

Yield spreads point to lower Aussie

"AUD/USD dropped to intra-day lows near 0.7136. We expect AUD/USD to stabilize lower around 0.7000, the level implied by Australia-US 2-year bond yield spreads."

"Australia April inflation was mixed. Headline CPI dipped more than expected to 4.2% y/y (consensus 4.4%, March: 4.6%) while the trimmed mean CPI matched consensus at 3.4% vs. 3.3% in March."

"The monthly CPI is Australia’s primary measure of inflation, but the RBA continues to focus on measures of underlying inflation from the quarterly CPI. Australia Q2 CPI data is due end-July."

"RBA cash rate futures trimmed bets of a 25bps hike by year end. In our view, the risk is skewed towards a more extended pause in the RBA tightening cycle."

"First, the RBA projects real GDP growth to be below potential over the next two years. Second, the RBA cash rate at 4.35% currently sits near the top of the range of model-based central estimates of the nominal neutral rate."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

Author

FXStreet Insights Team

FXStreet

The FXStreet Insights Team is a group of journalists that handpicks selected market observations published by renowned experts. The content includes notes by commercial as well as additional insights by internal and external analysts.

AUD/USD bulls regain control above 0.6950 amid USD retreat

AUD/USD regains traction and extends the previous day's bounce from the weekly low, aiming for 0.7000 in Asia on Friday. The overnight pullback in US bond yields keeps the US Dollar below an 18-month high, which in turn offers some support to the pair. Meanwhile, hawkish RBA expectations also keep the major underpinned.

USD/JPY holds gains near 158.00 after Japan's weak Household Spending data

USD/JPY clings to gains around 158.00 after data showed on Friday that Japan's Household Spending fell for the ninth straight month, undermining the Japanese Yen. Meanwhile, the US Dollar remains depressed as the overnight fall in US bond yields counters a hawkish Fed and geopolitical uncertainties, could cap any downside in the pair.

Gold remains range-bound below $4,200

Gold has given up some ground after an initial bullish attempt to reach weekly highs, returning to below the $4,200 mark per troy ounce on Friday. The US Dollar’s strong upside momentum, combined with rising US Treasury yields across the curve, seems to keep further gains in the yellow metal under scrutiny.

Has Bitcoin really escaped the macro forces it was built to fight?

Over 17 years ago, Satoshi Nakamoto designed Bitcoin (BTC) on the back of a global financial crisis as an alternative to the global monetary system outside the control of central banks, governments and traditional intermediaries. This raises a key question: has Bitcoin really become independent of the macroeconomic forces it was built to challenge?

The Euro is not the sick man of Europe. France's bond market is

EUR/USD remains under pressure, near the 17-month low of 1.1161 reached on Monday. The pair has lost more than 7% since its yearly peak, as concerns over France's public finances increasingly weigh on the single currency. But behind the weakness of the Euro (EUR), the problem does not necessarily lie with the European economy as a whole.