Greenback recovers from recent lows as US inflation jumps
The US dollar recovered from two‑month lows, jumping sharply after a hotter‑than‑expected inflation reading.
Higher oil prices pushed the headline annual inflation rate up from 3.3% in March to 3.8% in April, above expectations for a rise to 3.7%. Core inflation climbed from 2.6% to 2.8%.
The USD index hit one‑week highs as expectations for rate hikes firmed, if only modestly. Financial markets now see a 20% chance of a Federal Reserve rate hike by the end of the year.
US shares fell on the news, with the S&P 500 down 0.2% and the Nasdaq down 0.7%.
In FX markets, the greenback climbed, with EUR/USD down 0.4% and GBP/USD down 0.5%.
In Asia, USD/JPY gained 0.3%, USD/SGD rose 0.3% and USD/CNH was flat. The Aussie was helped by last night’s budget, down only 0.1%, while NZD/USD fell 0.2%.
Aussie budget hits with confidence stuck in a rut
The Australian dollar was moderately supported by last night’s budget, with attention focused on tax changes around housing and investment and less emphasis on government spending.
This comes against a backdrop of falling confidence. Australian businesses continue to struggle. National Australia Bank’s April survey showed confidence deeply negative at ‑24, only a modest improvement from ‑29 in March. Conditions slipped three points to +3, the second‑weakest reading since 2020.
Higher energy and input costs are weighing heavily. Forward orders, investment plans, cash flow and hiring intentions all softened as rising expenses cut into margins. Purchase costs continue to outpace selling prices, signalling slower activity and stubborn price pressures.
This leaves the Reserve Bank of Australia with little room to ease. Markets are currently pricing an 81% probability of a rate hike at the August RBA meeting.
AUD/USD now trades around 0.7% below its 6 May high of 0.7278. Initial support sits near the 21‑day exponential moving average around 0.7171. If losses deepen, the 50‑day average near 0.7096 is the next level to watch. On the topside, 0.7278 remains the key hurdle.
Cautious Japanese consumers keep USD/JPY in the spotlight
Japanese households remain cautious. Real consumer spending fell 2.9% year on year in March, far worse than expected and marking a fourth straight annual decline. Spending also dropped 1.3% on the month, missing forecasts for a rebound.
What stands out is the disconnect with income growth. Real wages rose 1.0% from a year earlier, extending a run of gains, yet consumers remain reluctant to spend. Higher pay alone has not been enough to change behaviour.
For the Bank of Japan, this argues for patience. Until domestic demand shows clearer momentum, pressure to act remains limited, even if rate hikes are still a longer‑term possibility.
Markets, however, are pricing a 95% likelihood of a rate hike at the July meeting.
In FX, USD/JPY is holding above 157.50 at the time of writing, around 2% below its 30 April peak of 160.72. The 21‑day exponential moving average near 158.02 marks the first upside test, with the 50‑day average just above at 158.08. On the downside, 155.00 remains the key level to watch.
US bond yields climb after CPI
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Calendar: 11 – 15 May
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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.
