(25 JULY 2018)DAILY MARKET BRIEF 1:AUD tumbles amid weak inflation data

On Wednesday morning, all G10 currencies extended gains against the US dollar, with the exception of the Australian dollar after inflation data fell short of expectations. The Aussie fell as much as 0.75% against the buck as AUD/USD slid to $0.74. Headline CPI printed at 2.1%y/y in the second quarter versus estimate of 2.2% and 1.9% in the previous one. The trimmed mean measure – a gauge of core inflation – held stable at 1.9%, while the weighted mean CPI eased to 1.9%y/y, down from 2.1% in the first quarter.

Lately, the Aussie has been under heavy selling pressure amid escalating trade war between the US and China. Indeed, China is Australia’s largest trading partner with more than 36% of its exports going to the world’s second largest economy. In view of the ongoing uncertainties, it looks like the Aussie is doomed to trade below the $0.75 support area, as speculators have no reason to develop a bullish view on the currency. Nevertheless, the $0.73 support seems to be holding out (has not been broken since May 2017), which suggests that AUD/USD will most likely continue to tread water between 0.73 and 0.75.

By Arnaud Masset