AUD/NZD range bound as USD takes up the bid

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  • AUD/NZD stuck in a range as markets trade through the greenback. 
  • Higher beta FX under pressure as stocks slump for a third day post US CPI beat. 

At the time of writing, AUD/NZD is trading around flat on the day so far within a drift between 1.780 and 1.0803. 

Financial markets have responded negatively to the much larger than expected surge in US April Consumer Price Index data which saw 

AUD/USD dropping from 0.7810 pre-CPI to 0.7720/30 post data and over the course of the New York session, At the same time, NZD/USD extended its earlier decline to 0.7160/ This left AUD/NZD a slightly higher to where it currently trades. 

Markets are concerned that the Fed officials will continue to downplay the significance of the CPI data and stick to the ”transitory” script.

So far, Fed officials have been pointing to base effects and temporary factors as reasons to remain patient.

Nevertheless, US bond yields were up across the curve and the DXY surged in response to very strong CPI data.

Additionally, US stock indexes fell for the third day which has weakened higher beta FX. 

”Although the data were perhaps less spectacular under the hood, and much of it looks transitory, the headline beat was just so massive that markets have necessarily had trouble digesting what it means for Fed policy (earlier hikes and less sugar for risk assets?),” analysts at ANZ bank argued.

”We suspect it’ll take some time for markets to fully digest this data, and that speaks to more USD strength for the time being, upsetting the erstwhile narrative.”

Speaking of AUD/NZD in particular, ”we remain of the view that a range-break is unlikely anytime soon absent an obvious catalyst, which there isn’t amid these USD-driven moves,” the analysts said. 

 

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