Aussie and Greenback Outperform On The Back Of Hot Inflation Prints

OVERVIEW : Wednesday, August 26th, 26’

Markets remained more constructive on the US-Iran situation, with Rubio saying the US is shifting from strikes toward sanctions and that no new US strikes are expected for the time being. Reports of a potential ceasefire including free navigation through the Strait of Hormuz also helped keep the de-escalation theme in focus, although the headlines remain uncertain. Trump said he is not in a hurry over talks and that there is no timetable, while Iran reiterated that Hormuz will remain closed unless the US accepts its terms. A senior Iranian official also said the agreement with Oman has not yet been finalised, which helped oil recover from its worst levels. WTI and Brent were around 2% lower heading into the European close, although both pared the downside as uncertainty around Hormuz remained. US PCE was broadly in line on the core measures, with headline monthly inflation only mildly above expectations, leaving little change to the September Fed outlook, where markets are pricing around a 69% chance of a hold. With Jackson Hole now the next major focus, DXY remained resilient, keeping precious metals under pressure.

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US DOLLAR

USD was firmer on the day, with the move largely a function of the hotter-than-expected PCE series. While core PCE came in line with expectations at 3.3% YY and 0.2% MM, headline PCE surprised mildly to the upside at 3.7% YY vs. 3.6% expected and 0.2% MM vs. 0.1% expected, providing some additional support to the Dollar. The data was not strong enough to materially shift the September Fed outlook, with markets still pricing around a 69% chance of a hold, but the firmer headline inflation print was enough to keep USD supported on the day. Focus now shifts to the Jackson Hole Symposium for further direction on the Fed path.

Data:

  • US Core PCE Index (Jul YY) 3.3% vs. Exp. 3.3% (Prev. 3.3%).
  • US Core PCE Index (Jul MM) 0.2% vs. Exp. 0.2% (Prev. 0.1%).
  • US PCE Price Index (Jul YY) 3.7% vs. Exp. 3.6% (Prev. 3.7%).
  • US PCE Price Index (Jul MM) 0.2% vs. Exp. 0.1% (Prev. -0.1%).
  • US GDP Growth Rate 2nd Est (Q2 QQ) 1.5% vs. Exp. 1.5% (Prev. 2.1%).
  • US Real Consumer Spending 2nd Est (Q2 QQ) 3.4% vs. Exp. 3.2% (Prev. 0.5%).
  • US Personal Income (Jul MM) 0.4% vs. Exp. 0.2% (Prev. 0.2%).
  • US Durable Goods Orders (Jul MM) 1.1% vs. Exp. 0.5% (Prev. 0.3%).


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EURO

EUR saw marginal performance on the day, closing only slightly higher as the latest ECB rhetoric provided some support but failed to generate a meaningful move. Schnabel’s comments that rates need to increase further to address inflation risks, alongside her view that the economy is gaining momentum, reinforced expectations for another hike in September.

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GREAT BRITISH POUND

With a light UK calendar this week, GBP remains lacking fresh catalysts, leaving the single currency more exposed to broader Dollar flows. PM Burnham’s comments around growth and business support offered some constructive rhetoric, but without further detail on fiscal policy they had limited impact on Sterling.


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AUSTRALIAN DOLLAR

AUD outperformed throughout the day, with the currency catching strong demand after stronger-than-expected CPI data pushed markets to add a few basis points of tightening expectations for September. Inflation remains above the RBA’s 3% upper target, while the trimmed mean held at 3.6% Y/Y vs. 3.5% expected, keeping the pressure on the RBA. MUFG noted that the risks are starting to shift toward a stronger Aussie, although positioning is becoming increasingly stretched, which could limit the pace of further upside. Construction work data did came out at -2.1% from expected 0.5%, which is important to note as analyst says that it will feed into the GDP print next month.

Data:

  • Australian CPI (Jul MM) 1% vs. Exp. 0.8% (Prev. -0.1%).
  • Australian CPI (Jul YY) 3.5% vs. Exp. 3.3% (Prev. 3.8%).
  • Australian RBA Weighted Median CPI (Jul MM) 0.4% (Prev. 0.3%).
  • Australian RBA Trimmed Mean CPI (Jul MM) 0.5% vs. Exp. 0.3% (Prev. 0.3%).
  • Australian RBA Trimmed Mean CPI (Jul YY) 3.6% vs. Exp. 3.5% (Prev. 3.6%).
  • Australian RBA Weighted Median CPI (Jul YY) 3.6% (Prev. 3.7%).
  • Australian Construction Work Done (Q2 QQ) -2.1% vs. Exp. 0.5% (Prev. 3.4%).


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CANADIAN DOLLAR

CAD was weighed on the day, with lower oil prices and the ongoing trade war with the US continuing to pressure the Loonie, although the move was less pronounced than earlier in the week.

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NEW ZEALAND DOLLAR

NZD closed as the worst performer on the day, with AUD absorbing most of the high-beta demand while a stronger USD added further pressure on the Kiwi.


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JAPANESE YEN

JPY was well supported on the day, with the Yen catching demand after hotter-than-expected Services PPI increased expectations for further BoJ tightening. Services PPI rose 3.6% Y/Y vs. 3.2% expected, accelerating from the previous reading and reinforcing the broader inflationary pressure coming through the Japanese economy. Economy Minister Kiuchi also noting that CPI is expected to gradually rise due to conditions in the Middle East.

Data:

  • Japanese Services PPI YY (Jul) 3.6% vs Exp. 3.2% (Prev. 3.2%, Rev. 3.4%)


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SWISS FRANC

CHF was the clear G10 laggard just behind the Kiwi, with the combination of a stronger USD and a more constructive geopolitical backdrop weighing on the non-yielding safe haven.