Cool CPI Data Causes AUD to Drop

AUD

The Aussie Dollar opens down across the board, slipping against all major peers after softer-than-expected domestic inflation data sparked a sell-off yesterday. Headline CPI slowed to 4.2% annually in April from 4.6% previously, undershooting market forecasts of 4.4%. However, underlying inflation remained sticky, with the trimmed mean measure rising 3.4% YoY, matching expectations and staying above the Reserve Bank’s 2-3% target. Markets viewed the data as effectively ruling out a hike and supporting a hold at the upcoming June RBA meeting. Asian equities were mixed on Wednesday with the Nikkei flat and the Hang Seng and Shenzhen finishing -1.1% and -0.8% respectively. Locally, the ASX closed +0.7% with consumer discretionary and IT leading the pack. Looking ahead, the calendar is fairly light the rest of the week and markets will be closely monitoring any updates on a peace deal or for any further escalations in the Middle East.

USD

AUDUSD opens lower at 0.7141, weighed down by domestic factors while global markets remained broadly stable overnight. The safe-haven US Dollar was steady as US strikes on Iran dented optimism for a near-term end to hostilities and a reopening of the crucial Strait of Hormuz shipping channel. A steady session on Wall St. saw the Dow Jones close +0.4%, while the Nasdaq and the S&P 500 both closed +0.1%. US 10-year yields were unchanged at 4.47%, while Brent Crude fell 4.6% to $94.60 a barrel. Reports from Iranian state television came in that Iran had received a draft MOU framework with the US, which includes the withdrawal of the naval blockade and the reopening of the Strait within a month. The White House later stated that the draft was a 'fabrication'. Tonight's high-impact U.S. Prelim GDP and Core PCE inflation readings are set for release this evening and are critical for currency valuation, as sticky price pressures could prompt the central bank to lift interest rates. Core PCE for April is expected to come in at +0.3% MoM and +3.3% YoY.

EUR

AUDEUR opens down at 0.6142, moving lower in sympathy with the broader AUD weakness. European equity markets were a little mixed yesterday, with the CAC gaining +0.4% while the DAX ended the session flat. Today’s calendar includes speeches from ECB officials following yesterday's release of the ECB’s financial stability review. Markets are now looking ahead to Friday’s country-level inflation data for clearer guidance on the European Central Bank’s policy outlook.

GBP

AUDGBP opens lower at 0.5319 this morning. On the equity side, the FTSE lagged its global peers, closing just +0.1% higher. The Sterling is facing renewed pressure of its own as markets continue to scale back expectations for Bank of England monetary tightening following softer domestic activity and weaker inflation data. Swap markets have aggressively adjusted, shifting from pricing in three rate hikes to reflecting only one fully priced hike, with a second now viewed as a mere 50/50 possibility.

NZD

AUDNZD opens down at 1.2105 and marks its largest single-day drop since October 2017, pulling the pair sharply off its recent 13-year high. This massive move was driven by a "hawkish hold" from the RBNZ, which kept the official cash rate at 2.25% but revealed a close 3-3 board split on whether to actually raise rates. The central bank signaled that interest rates will likely need to increase sooner and more aggressively than previously anticipated, driving a massive surge in demand for the Kiwi. Today will also see the release of New Zealand's Annual Budget at midday.