Australian dollar launches off soft US inflation

DXY was hosed last night:

An oversold AUD launched:

Though couldn’t keep pace with EMs:

Gold firmed:

Oil flamed out:

Base metals were mixed:

Big miners to the moon!

EM stocks too:

Even EM junk caught a bid finally:

As the Treasury curve was thumped:

Bunds were bid:

And stocks flew on the falling equity risk premium:

The trigger was soft US inflation which met expectations at 2.5% year on year but was soft under the hood with month on month at 0.2% versus 0.3% expected and 0.1% ex-food and energy versus 0.2% expected. Used cars appear to have been the biggest drag:

Not big misses by any means but enough to reverse the over-stretched USD bid for now. Nonetheless, core measures continue to firm and the Fed is well on track for at least two more hikes this year:

According to the Federal Reserve Bank of Cleveland, the median Consumer Price Index rose 0.2% (2.9% annualized rate) in April. The 16% trimmed-mean Consumer Price Index also rose 0.2% (1.9% annualized rate) during the month. The median CPI and 16% trimmed-mean CPI are measures of core inflation calculated by the Federal Reserve Bank of Cleveland based on data released in the Bureau of Labor Statistics’ (BLS) monthly CPI report.

Earlier today, the BLS reported that the seasonally adjusted CPI for all urban consumers rose 0.2% (2.7% annualized rate) in April. The CPI less food and energy rose 0.1% (1.2% annualized rate) on a seasonally adjusted basis.

Core PCE is the key measure and is at 1.9%, just shy of the Fed target:

I do not think this is any form of key reversal. US inflation is still stronger with a much tighter labour market than any other major economy and the Fed on target for more tightening than elsewhere. It was simply an opportunity for markets let go an over-stretched trade in the short term.

AUD to keep falling in trend.

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David Llewellyn-Smith is the chief strategist at the MB Fund which offers two options to benefit from a falling AUD so he is definitely talking his book. The first option is to use the MB Fund International Stocks Portfolio which is always 100% long as a part of your own asset allocation mix. The second option is to use an MB Fund tactical allocation in which we choose the asset mix for you, including exclusively international stocks, but with bonds and other assets as well to ensure a more conservative mix.  

The recent performance of both is below:

Nucleus Relative Performance
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