US CPI came in slightly higher than expected, raising chances that the Fed might keep rates high for longer following a week featuring dovish Fed talk from rising yields. The rise in the greenback was seen ending the recent risk rally.
Chart: AUDUSD
In September, US CPI data showed a slight 10bps increase in both monthly and yearly inflation rates to 0.4% and 3.7%, respectively. Although Core aligned with expectations, the likelihood of the Fed maintaining a “high for longer” approach increased due to rising shelter costs, particularly a 0.5% spike in rental costs. The dollar index soared 0.86%, pushing higher against the Japanese yen to recapture 150, sparking concerns of a BOJ intervention. 149 is expected support. Meanwhile, Initial Jobless claims came in largely in line with expectations, while on the auction front, the 30-year bond pool disappointed.
The US imposed sanctions on owners of tankers carrying Russian oil priced above the price cap of $60/bbl. It follows an oil and gas cooperation deal between Iran and Russia, presumably aiming to undermine sanctions. WTI firmed up due to OPEC’s more optimistic forecast than the IEA, but a large EIA inventory build of 10.2M bbl and OPEC’s increased production saw crude giving back nearly all gains. It closed the session at $83.50/bbl, with the next levels seen at $86 and $81.50 a barrel.
ECB policymakers Francois Villeroy (France) and Yannis Stournaras (Greece) expressed optimism about inflation returning to 2% without further tightening. Minutes from the last meeting showed that the bank’s models suggest that a deposit rate of 3.75 to 4% could bring inflation back to 2% if maintained for a sufficient period, implying the ECB may be done hiking. Pressured by a stronger dollar, EUR/USD ended its 6-day streak at 1.0640, with next support expected below or at $1.05.
A stronger dollar affected several currencies, including the Australian dollar, with rising US yields seen AUD/USD 1.5% day on Thursday. China’s CPI contributed to the drop as it fell below expectations of a 0.2% increase, falling flat. Exports also showed weakness at 6.2% versus 7.6% compared to last year, while imports have not shown a positive growth since September last year. The move from 0.6414 to 0.6313 could continue if bears take over 0.6286, with some respite towards 0.6364 possible.