> AU June NAB Business Confidence : 11 v. 20 prev.
> CN June Trade Balance : 333Bio v. 271Bio exp.
> EU June German Final CPI : 0.4% v. 0.4% exp.
> US June Core CPI & H/line CPI : 0.9% & 0.9% v. 0.4% & 0.5% exp.
Overnight Headlines (BBG)
> Earnings season in the US kicks off with strong headline numbers from some of the US banks, although uncertainty about the future shined through in the forecasts
> Inflation in the US came in above even the highest street forecasts as Fed members continue to tout the likelihood that this surge is transitory and caused by supply bottlenecks and reopening price distortions
> The NSW and Federal government have put together a robust support package for the state’s businesses and individuals suffering the recent COVID19 lockdown, with the eight week package a signal that this shutdown may be here for quite some time despite the optimism in yesterday’s numbers
What you need to know
The Dollar opens up this morning much stronger as the expectations of quicker than expected tightening from the Federal Reserve took over as both headline and core inflation beat street estimates overnight. In Asia, the local data has started to sour as NSW faces the spread of the Delta variant and lockdowns with business confidence dropping in June as uncertainty of the path forward takes hold of risk sentiment. Chinese trade figures surprised to the upside as both in the exports and imports came in much better than expected in June, although major questions remain as to what H2 2021 has in store as the COVID19 Delta strain is causing significant headwinds.
The market reaction for the AUD was a move higher back up above the 0.7500 handle, albeit very briefly and only touching an intraday high of 0.7503 in the process. Investors were wary of the all-important inflation data to print out of the US later in the evening, as the inflationary narrative seems to have started to come back into the fray.
The June US CPI report raised some eyebrows, coming in at 0.9% and 5.4% y/y as pressures mounted on rising consumer prices. The Fed members continue to tout the temporary nature of the surge, with used cars/trucks accounting for nearly a third of all the price increases. Nonetheless, the increase in CPI was the most since 2008, and financial markets saw a move into the Dollar as UST yields rose across the curve. US equity prices faltered a touch, with strong earnings from major banks unable to buck the inflation narrative for now, as the S&P500 closed down 0.35%.
In FX, it was a surge in the USD as the DXY opens up the day 0.6% stronger. While the AUDUSD and NZDUSD were victims of the Dollar rally, both down 0.5% from yesterday’s opening prices. The AUD crosses are mixed, although the moves minimal with the USD up against nearly all the majors. AUDZAR was a strong performer as unrest in South Africa following the arrest of Jacob Zuma has seen investors move away from the Rand. Mixed bag on commodity markets as Iron Ore is up another 1.20% while Copper struggles down 0.8% for the day. WTI crude rebounded following the brief slide, up 1.35%.
The Day Ahead
> AU July Westpac Consumer Sentiment : -5.2% prev.
> NZ RBNZ Rate Decision : 0.25% exp (no change)
> UK June H/line CPI & Core CPI : 2.2% & 2.0% exp.
> US June Core PPI & H/line PPI : 0.5% & 0.6% exp.
> CA BOC Monetary Policy Statement & Press Conference : 0.25% exp.
> US EIA Crude Oil Inventories : -4.3Mio exp.
> US Fed Chair Powell to speak – Testimony to House Financial Services Committee in Washington, DC.
The main event will be the rate decision from the RBNZ at mid-day today, and with the new remit of stable housing prices it will be interesting to see the tone that their accompanying statement may take. Last week major banks rejigged their forecasts to reflect a rate increase as soon as November from the RBNZ, so the key will be whether or not this is eluded to by the RBNZ themselves. AU consumer confidence figures hit the wires first up, not expecting a strong print here in light of recent COVID19 events.
UK inflation numbers kick it off in early London, while US producer prices give investors something to chew on ahead of the always important commentary by the head of the Fed, Jerome Powell, later this evening. NSW business/individual support may give the government the green light to extend the lockdown across parts of NSW, although a near certainty the question is to how long this may last with case numbers jumping around. The Bank of Canada is expected to keep rates on as summer takes over in Canada, with a reopening of the economy potentially seeing a hawkish tone from the Canucks.
Range Today : 0.7410 – 0.7490
The 0.7500 handle seems a mountain too high for the time being, with the lack of real bullish momentum clear with the downside risks to the AU economy mounting and the surge in US consumer prices. Need to see that level broken and held on the daily close for a shift back toward 0.7600, not expecting that today with the risks seemingly tilted to the downside, especially if the RBNZ’s tone disappoints it may drag APAC pairs lower intraday.
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