The Australian dollar enters a holding pattern ahead of today's blockbuster US inflation report

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The Australian dollar put in an unusually weak performance on Tuesday, finishing mixed against the major crosses despite further strength in stocks and commodity markets.

The lacklustre performance may reflect that we’re about to receive major US economic data later today that carries the potential to reignite volatility across financial markets.

Here’s the scoreboard as at 8am AEDT.

AUD/USD 0.7859 , 0.0001 , 0.01%
AUD/JPY 84.73 , -0.67 , -0.78%
AUD/CNH 4.9769 , 0.007 , 0.14%
AUD/EUR 0.6358 , -0.0037 , -0.58%
AUD/GBP 0.5658 , -0.0022 , -0.39%
AUD/NZD 1.0798 , -0.0022 , -0.20%
AUD/CAD 0.9894 , 0.0007 , 0.07%

The Aussie is currently trading flat against the greenback, lagging the gains seen in other major currencies such as the Japanese yen, British pound and euro.

“[The Australian dollar] has been more of a sideshow in the last 24 hours but has suffered a bit alongside other commodity currencies,” said Ray Attrill, Head of FX Strategy at the National Australia Bank (NAB).

AUD/USD Hourly Chart

A sharp increase in the Japanese yen in early European trade, sending the USD/JPY to a fresh five-month high, put the US dollar under pressure during the session, contributing to the strength seen the other majors.

“The general point to make about the US dollar is that there is rightly more focus on the ‘twin deficits’ (fiscal and current account) implications of US tax reform rather than the potential short term growth/Fed policy implications,” says Attrill.

“Rising twin deficits historically go hand in hand with a falling US dollar.”

Turning to the session ahead, the focus will likely be on one thing and one thing only — the US consumer price report for January released at 12.30am AEDT.

“The consensus is for a 0.2% core print, which would pull year-on-year growth down to 1.7% from 1.8%,” Attrill says.

“In years past, January CPI has tended to be above average, but as one of the commentators we follow notes, revised seasonal adjustment factors appear to have reduced the risk of a 0.3% print tonight.”

Attrill adds that a “0.1% print would like be very positive for both stocks and bonds”. As a well known proxy of investor risk sentiment, that list would almost certainly include the Aussie, too.

Given the market reaction to the sharp jump in US wage pressures in January, sparking concern that inflationary pressures would follow next, this report clearly carries the potential to either soothe or raise those concerns today.

Outside of the CPI report, markets will also receive Australian consumer sentiment, German CPI, Eurozone industrial production and US retail sales.

A raft of Q1 GDP report will also be released, including from Japan, Germany, Italy and the Eurozone.

On any ordinary day they’d be headline acts, but the US CPI report will steal the show on this occasion.

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