The Australian dollar is climbing again as US inflation data comes up short

Photo by Ian Walton/Getty Images

The Australian dollar has opened the new trading week just below the US79 cent level, rebounding modestly on Friday as another soft US consumer price inflation (CPI) report managed to offset ongoing geopolitical concerns surrounding North Korea.

Here’s the Aussie dollar scoreboard as at 7.55am AEST.

AUD/USD 0.7895 , 0.0006 , 0.08%
AUD/JPY 86.1 , 0.01 , 0.01%
AUD/CNH 5.2668 , 0.0066 , 0.13%
AUD/EUR 0.6675 , -0.0002 , -0.03%
AUD/GBP 0.6066 , -0.0002 , -0.03%
AUD/NZD 1.0778 , 0.0008 , 0.07%
AUD/CAD 1.0006 , -0.0001 , -0.01%

As seen in the 5-minute chart below, the AUD/USD reversed course in the second half of Friday’s trading session following the release of a weak US CPI report for July.

The core CPI figure, which excludes food and energy prices, rose by just 0.1% for the month, missing expectations for a larger increase of 0.2%. The result left the year-on-year rate at 1.7%, unchanged from the level reported in June.

The soft result saw US treasury yields dip, leading to broad-based losses for the US dollar.

“Muted US inflation pressures will continue to weigh on US interest rate expectations and undermine USD,” said Elias Haddad, senior currency strategist at the Commonwealth Bank.

“Fed fund futures are now only discounting a 38% probability of a December FOMC 25bps [basis point] interest rate rise compared to 47% before Friday‚Äôs July US CPI report.”

The scaling back of US interest rate hike expectations undermined the US dollar, helping the Aussie dollar to bounce into Friday’s close.

AUD/USD 5-Minute Chart

Whether the modest rebound in the Aussie can be sustained today will largely be determined by the release of Chinese economic data later in the session.

Retail sales, industrial output and urban fixed asset investment figures for July will be released at midday AEST, carrying the potential to generate short-term volatility in the Aussie.

“Both industrial production and retail sales are expected to have eased back slightly in year-on-year growth terms to 7.2% from 7.6% for IP and 10.8% from 11.0% for retail sales,” says Ray Attrill, head of FX strategy at the National Australian Bank.

Fixed Asset Investment — the third data point in this latest data dump — is expected to have grown 8.6% year-on-year year-to-date, unchnanged from the pace seen in the first six months of the year.

Outside of the trio of Chinese data releases, markets will also receive Japanese Q2 GDP at 9.50am AEST. It’s expected to grow 0.6% for the quarter, leaving the seasonally adjusted annual rate (SAAR) at a healthy 2.5%.

There very little on the calendar later in the session with industrial production data from the Eurozone the only release of note.

The quiet data calendar suggests that geopolitics will remain a key feature of movements across markets today.

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