Aussie, kiwi spike after US inflation
The AUD/USD spiked higher overnight after US headline inflation fell below 5.0% for the first time since 2021.
The NZD/USD was also higher.
Annualised headline inflation fell from 5.0% in March to 4.9% in April.
However, core inflation, which strips out food and energy, remains elevated, with the annual rate steady at 5.5%.
CNY weaker on rate cut expectations
Today’s early focus is on Chinese inflation.
While most of the world struggles with elevated inflation, Chinese inflation remains too low, in a sign that demand in China remains underwhelming.
After hopes of a swift reopening of the Chinese economy drove a rally in the Chinese yuan at the end of 2022, the currency has recently weakened on worries that the People’s Bank of China might need to cut interest rates to support the economy.
GBP strength to be tested with BoE due
On the other hand, the UK continues to struggle with double-digit inflation.
The high inflation rate has caused the Bank of England to raise rates from 0.1% in 2021 to 4.25% today.
The market sees a 99% chance of another 25-basis point hike at tonight’s meeting.
While the market expects close to two more hikes after tonight’s decision, the recent reaction in FX markets to central bank hikes has been to push currencies lower. The market might need aggressive commentary from the BoE tonight to keep the GBP elevated.
Aussie, kiwi hit new highs
Table: seven-day rolling currency trends and trading ranges
Key global risk events Calendar: 8 – 12 May
All times AEST
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