FX market outlook

FX market outlook

Aussie hurt by miss on inflation; yen weakens while euro pushes higher.

The aussie weakened after Australian inflation data missed forecasts. Risk appetite continued to pressure safe havens like the yen and gold. The euro was supported by the euphoria of the outcome of round one of the French elections.

Australia reported that its headline inflation rose to an annualized rate of 2.1% in Q1, pushing it into the Reserve Bank of Australia’s target band of 2 to 3% for the first time since the September quarter of 2014. However, the result was weaker than the 2.2% expected. On a quarter-on-quarter basis, CPI rose to 0.5% in Q1 versus 0.6% anticipated.

The aussie fell after the data which would likely underscore the RBA’s decision to leave interest rates unchanged. The numbers did not miss forecasts by much but the market was expecting a rise in CPI and so the unexpected decline had a bigger impact on the aussie, pushing it back below the key $0.7500 level against the greenback to $0.7489.

The euro continued to benefit from the results of the first round of the French elections which saw a market-friendly Emmanuel Macron passing through to the second round and is expected to win the presidency. Meanwhile, speculation that the ECB may hint at tapering its stimulus program by June during its policy meeting tomorrow also helped support the single currency. The euro rose to a five-and-a half month high against the dollar to reach $1.0950, the strongest level since November 9.

Risk appetite, higher US Treasury yields, strong US corporate results and hopes for a Trump tax cut helped lift the dollar against the yen, pushing it into the 111-yen handle.

The better-than-forecast earnings results of US companies pointed to signs of growth in the US economy. Meanwhile, all eyes will be on President Donald Trump who is set to announce a framework for tax reform later today.

In commodities, gold was little changed around $1,2643 an ounce after falling 1% on Tuesday.

WTI oil rose back above $49 a barrel as focus turns to the EIA cured oil inventory report due later today.