Dollar flat as Iran tensions offset soft CPI
USTs initially firmed as US CPI undershot expectations, with core printing +0.21% in May against a +0.3% consensus, but the move unwound after the US president pledged renewed strikes against Iran, accusing Tehran of stalling interim peace talks. Crude jumped on the escalation, with WTI +4.14% and Brent +3.73% to ~$94.84, while Iran accused the US of hitting civilian water infrastructure.
Equities fell, led by tech. The Nasdaq lost 1.98%, the S&P 500 -1.62% and the Dow -1.87%.
In Europe, bonds sold off into tonight’s ECB meeting, where a 25bp deposit-rate hike is expected as higher energy prices lift the inflation outlook. Bunds closed 4bps cheaper, BTPs underperforming by 2bps. UK gilts outperformed bunds by 1bp.
Across Asia, equities mostly retreated. Korea’s Kospi led losses at -4.5% on internet and chip weakness, Japan’s Nikkei -1.9% and Hang Seng -0.6%. BOJ’s Ueda has been hospitalised and is set to miss next week’s meeting, with the deputy governor acting as chair.
Overnight, AUD/USD was down 0.4% and NZD/USD was down 0.3%, while USD/SGD and USD/CNH were flat.
US core inflation softens, USD/SGD to test key resistance
There is a split print out of the US in May. headline prices rose 0.5% on the month, exactly as the survey looked for, leaving the annual rate steady at 4.2%. The core measure came in softer, up just 0.2% against the 0.3% the market penned in, with the annual rate landing on the nose at 2.9%.
In Asia, USD/SGD trades about 2.4% above its 28 January low of 1.2586. Support sits near the 21-day EMA at 1.2820, with the 100-day EMA close behind at 1.2792.
The next key level on the upside is 1.2900.
China holds consumer prices steady
China’s May CPI held at 1.2% y/y, a touch softer than the 1.3% the consensus looked for. PPI matched expectations at 3.9% y/y, climbing further from 2.8% and extending the move back into positive territory that started on firmer oil in March. Soft consumer prices alongside a high but peaking factory gate read leaves the door open for more stimulus rather than shutting it. We think the stagflation worry is overdone — we still expect Beijing to hit this year’s growth target and inflation to ease through the second half.
USD/CNH trades about 0.4% above its recent low of 6.7581 (2 June). The pair needs to break above the 21-day EMA at 6.7876 to build upward momentum. A move higher would open the 50-day EMA at 6.8130, followed by the 100-day EMA at 6.8611.
Elsewhere, AUD/CNH sits at a two-month low.
Antipodeans down on risk-off
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 8 – 12 June
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
