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NZD

Australia’s inflation problem

Australia’s inflation genie is struggling to be put back in the bottle. The monthly CPI indicator for May was hotter than predicted. Headline inflation re-accelerated to 4%pa (from 3.6%pa in April), its fastest pace in 7-months with the 3-month and 6-month annualized run-rates also ticking higher. Positive base-effects were a factor but the detail under the hood would also be on the RBA’s radar given it has indicated limited tolerance for upside surprises. Notably, the disinflation across ‘goods’ prices looks to be stalling (‘goods’ inflation has held steady at 3.3%pa over the past few months, above its pre-COVID average). And...

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Holding pattern

• Range trading. US equities rebound, while bond yields & the USD tread water. Upside surprise in Canadian inflation generated limited CAD impact.• AU CPI. May reading of the monthly CPI due today. Data will include more services prices. Consensus looking for annual inflation to re-accelerate.• US events. No major US data or speeches tonight. Durable goods (Thurs night AEST) & PCE deflator (Fri night AEST) the next key US releases. In the main global markets continue to range trade with Northern Hemisphere summer trading conditions kicking into gear. Unlike the modest falls across European equities (EuroStoxx50 -0.3%), US equities...

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Watching & waiting

• Consolidation. Quiet start to the week. Easing French election risks supported European equities & the EUR. Softer USD pushed AUD a bit higher.• JPY watch. USD/JPY is around levels which previously triggered bouts of FX intervention. Verbal rhetoric by Japanese officials is starting to pick up.• Inflation pulse. US core PCE deflator (due Fri) likely to slow, while monthly AU CPI (due Weds) could re-accelerate. Diverging trends are AUD supportive. It has been a quiet start to the new week. This isn’t surprising given the bulk of the potential market moving global releases such as US durable goods orders...

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Inflation & politics this weeks focus

• Macro trends. Weaker EZ PMIs weighed on EUR. Positive US surprises also helped the USD. AUD drifted lower, but still rose over the week.• AUD crosses. Diverging trends still AUD supportive, particularly on crosses. AUD/EUR & AUD/CAD near respective 1-year highs. AUD/JPY north of 106.• Event radar. Locally, monthly CPI (Weds) & speech by the RBA Dep. Gov in focus. US PCE deflator due (Fri) & first Presidential Election debate will be held. Diverging business PMI data from Europe and the US generated a few intra-session market gyrations on Friday. The US data defied gravity with the PMIs improving...

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AUD cross-currents

• Mixed markets. European equities rose, while US stocks slipped back. Dovish European central bank outcomes weighed on EUR & GBP. USD a bit firmer.• Central banks. SNB cut rates again. The BoE opened the door to a move in August. The cross-currents pushed AUD/EUR & AUD/GBP higher.• Data flow. PMIs in focus today with data from Europe & the US due. Is the US’ outperformance fading? If so, the USD may lose ground. There were several pieces of global economic news overnight, yet for the most part the net financial market moves were modest. Equities across Europe rose again...

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