AUD Slides as Soft Inflation Data Reverses RBA Hike Bets

AUD

The Australian Dollar opens lower against the majors this morning after Australian inflation data surprised on the downside as the annual pace of inflation eased more than expected in June. The result has cooled near-term expectations for an interest rate hike, even as rising housing costs continued to weigh on the reading. Markets now imply just a 2% probability of a further increase at the RBA’s next meeting on August 11, down from 22% prior to the data. The country's consumer price index rose 3.8% in the 12 months to June, down from a 4% rate logged in May. Asian equities finished mixed yesterday with the Hang Seng +2%, Shenzhen +0.7% and the Nikkei -1.5%. Locally the ASX 200 gained +1% as healthcare and consumer discretionary sectors led the pack. In local data there is nothing major set for release with only Building Approvals m/m, and Import Prices q/q later this morning at 11:30am.

USD

AUDUSD opens lower this morning at 0.6957 following the US Fed decision to keep monetary policy unchanged at 3.75% in a 9-3 split decision. Markets still think the Fed will tighten policy at some point, but with two inflation prints and two job reports ahead of the September FOMC meeting, nothing is guaranteed. Wall St. remained under pressure through the session with the Nasdaq closing -1.7%, the S&P 500 -1.3%, and the Dow Jones -2.2%. US Gross Domestic Product for the second quarter will be published later tonight. Consensus expectations point to a modest pickup in growth to 2.3% quarter on quarter, up from the previous quarter’s revised 2.1% expansion. US Personal Consumption Expenditures Price Index for June is also set for release, with expectations that both headline and core measures are set to decelerate, rising by 3.6% y/y and 3.3% y/y respectively, largely reflecting the moderation in oil prices for the month. The release could shape expectations for the Fed’s near-term policy path.

EUR

AUDEUR opens lower this morning at 0.6068 due to the Aussie Dollar weakening after yesterdays softer than expected inflation results. Eurozone equities closed mixed with the DAX flat and the CAC down -0.6%. In European news, Eurozone Gross Domestic Product for Q2 will be released tonight, along with the Unemployment Rate for June. The value could show a small increase from its multi-decade low of 6.2% to 6.3%, with softer labour market conditions evident in business survey data.

GBP

AUDGBP opens lower this morning at 0.5205, taking advantage of the Aussie Dollar weakening. Some minor releases yesterday out of the UK with M4 Money Supply m/m and Net Lending to Individuals m/m which did little to move markets. UK Equities closed in the green with the FTSE +0.3%. Later this evening The BoE will meet and are likely to hold the cash rate at 3.75%, with the 7-2 vote split from June likely to be repeated. It’s expected the guidance to remain largely unchanged with an emphasis that policymakers “stand ready to act as necessary”. The most likely outcome is a repeat of the previous 7-2 vote split with Pill and Greene again backing a hike.

NZD

AUDNZD opens lower this morning at 1.1993 after the Australian Dollar slipped as soft inflation data quashed rate hike bets. An uneventful day from our Kiwi neighbours yesterday, however later this morning we will get their ANZ Business Confidence survey results. No further news related to the NZD this week.