US inflation higher than expected
The US dollar extended this week’s rebound from three-month lows after last night’s closely watched US PCE inflation numbers came in above expectations.
Headline PCE inflation reading was reported at 3.7% versus the expected 3.6%, while the core measure came in at 3.6% compared with forecasts of 3.4%.
The US data continued a broader theme of global inflation picking up pace in July, even after largely missing forecasts for much of the first half of the year.
The US dollar gained on the news, with markets on edge ahead of the start of the Jackson Hole Symposium of global central bankers, which begins Thursday US time.
The greenback gained against most major currencies, with NZD/USD down 0.5% and GBP/USD lower by 0.4%.
The Aussie dollar bucked the trend and was higher, with AUD/USD up 0.1%, after Australia recorded a stronger-than-expected inflation reading.
Aussie dollar higher as inflation stays stubborn
Australia’s July inflation data came in slightly higher than expected, adding to concerns that price pressures remain persistent. Headline inflation eased to 3.5% y/y from 3.8%, but was above the 3.3% forecast.
Underlying inflation, measured by the trimmed mean, held at 3.6%, also topping expectations. The figures strengthen the case for the RBA to consider another rate increase, with attention now shifting to next week’s Q2 GDP report, particularly the impact of strong data centre investment. Markets currently see an 86% chance of an RBA rate hike by December.
AUD/USD is trading at a more than three-month high. Initial support sits at the 21-day EMA of 0.7090, followed by the 50-day EMA at 0.7054.
The next key resistance is located at 0.7250. AUD/EUR and AUD/GBP are also at three-month highs, while AUD/NZD is at a one-week high, highlighting broad AUD strength.
Risk appetite improves as Middle East tensions ease
Otherwise, market sentiment improved following several signs of easing tensions in the Middle East. Iran reported constructive diplomatic talks with Pakistan, while reports suggested the US is preparing to return diplomats to embassies across the region.
Iran and Oman also announced a temporary maritime corridor to help reopen the Strait, and Russia’s RIA news agency cited sources in Iran and Pakistan indicating that a US-Iran ceasefire agreement has been reached. These developments supported demand for risk-sensitive currencies and assets.
Looking at APAC FX, USD/CNH remains close to a three-year low. A break above the 21-day EMA at 6.7405 could pave the way towards the 50-day EMA at 6.7604. On the downside, psychological support is located at 6.7100.
USD/SGD was higher, up 0.2%, in line with broader US dollar gains across markets.
Aussie remains supported despite USD rebound
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 24 – 29 August
All times are in AEST
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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.
