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USD

14 May 2023

Higher inflation expectations are a worry for the US Fed

• US inflation worries. Jump in US inflation expectations should catch the US Fed’s eye. Market pricing for multiple Fed rate cuts looks misplaced.• USD rebound. Higher yields supported the USD. US retail sales & Fed speakers in focus this week. Reduction in Fed rate cut pricing should be USD positive.• AUD slips back. The AUD has extended its slide. Local and offshore data should generate AUD vol. On net, we think the AUD can fall back further. Markets nervousness continued into the end of last week, with growth concerns, higher US inflation expectations, and US debt ceiling worries weighing...

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12 May 2023

Dollar maintains upward momentum into weekend on fading pivot expectations

Two- and ten-year Treasury yields are climbing and the dollar is outperforming its major rivals as investors (seemingly) begin to buy into the Federal Reserve’s much-repeated “higher for longer” narrative. S&P and Nasdaq futures are setting up for a modest gain at the open, and commodity prices are down, with the West Texas Intermediate benchmark knocking on the $70 threshold once again. In prepared comments released early this morning, Federal Reserve governor Michelle Bowman said the central bank might be forced to raise rates further as it struggles to slow growth and bring inflation down. Speaking to a banking conference in Germany,...

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11 May 2023

Global growth worries re-emerge

• Growth worries. Global growth concerns re-emerged after a run of soft data, particularly out of China. Copper is at its lowest since late-November.• Risk off tone. Bond yields fell back & the USD strengthened. The Bank of England hiked again, but questions about how much more it will do remain.• AUD weaker. The negative backdrop has seen the AUD underperform. We expect this challenging environment to remain in place for a while yet. Concerns about global growth picked up overnight following a string of softer than anticipated data, particularly out of China. US equity markets eased modestly (S&P500 -0.2%),...

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11 May 2023

US inflation: still a long way from home

Given its influence over US monetary policy and interest rates, which in turn shape broader asset and FX markets, trends in US inflation are critical to watch. Indeed, we would argue that while Australia’s inflation pulse influences domestic interest rates and the AUD, these impacts are swamped by US inflation developments as they can affect not only US macro-outcomes but also global growth expectations, credit spreads, commodity prices, global equities, and world bond markets. At a topline level, the April reading of US inflation shows that things are moving in the right direction. ‘Peak’ inflation is behind us, but genuine...

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10 May 2023

Has Fed rate cut pricing gone too far?

• US inflation. Some tentative signs the US inflation pulse is cooling. But core inflation remains a long way from the Fed’s target.• Fed pricing. Interest rate markets appear too eager to price in the Fed cutting cycle. Expectations that cuts could start as soon as July look misplaced.• AUD resistance. AUD ticked up, but again found resistance ~$0.68. Another Bank of England rate hike & hawkish tone could see AUD/GBP slip back. Mixed fortunes and choppy trade across markets, with the latest US inflation print in focus overnight. US equities endured some intra-day volatility but ended the day in...

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