Australian dollar jumps on US inflation bust

See the latest Australian dollar analysis here:

Australian dollar about to jump on RBA policy error?

Forex finally got what it was asking for: lot’s of US inflation. But, as expected it was a bust for markets that have long priced it. They are now moving quickly towards the MB position of disinflationary shock. DXY and EUR barely moved:

The Australian dollar remained thoroughly rangebound as well:

Gold and oil lifted:

Base metals were weak:

Big miners too:

EM stocks went nowhere:

The dash for trash is on again:

US yields went shimmy, shimmy, whoosh:

The value trade reversed into growth:

All as expected. Westpac has the data wrap:

Event Wrap

US CPI rose in May 0.6%m/m and 5.0%y/y (vs. est. +0.5%m/m and +4.7%y/y), with core rising 0.7%m/m and 3.8%y/y (est. +0.5%m/m, +3.5%y/y). However, the details showed that the majority of the rise was due to a second consecutive month of sharp gains in used vehicle prices (rising 7.3%m/m in May after +10.0%m/m in April), such gains likely to be transitory bucket.

The ECB left all of its policy settings unchanged, as was widely expected. Increases in growth forecasts and a more balanced assessment were also expected to some extent. Medium term inflation projections were unchanged, though (1.4% in 2023), and remain well below the ECB’s target of 2%, indicating that policy will remain accommodative for some time.

Event Outlook

New Zealand: The strong trend is set to continue in the May update of the manufacturing PMI.

US: The Uni. Of Michigan consumer sentiment survey is expected to reflect the ongoing economic recovery, rising further to 84.2 in June.

Yes, US inflation popped higher than expected, as expected. But the internals are already showing what is coming as the second derivative price rises stall. TSLombard:

May CPI was high by any measure, but a quick look inside the data shows the pace is beginning to decelerate. The pace of change for core CPI and for services excluding rent, decelerated on a m/m basis in May (chart below).The percent change prices for core commodities did pick up, much of which reflects the price of new cars (1.6% m/m vs 0.5% in April)–lack of supply due to the chip shortage. On the service side, airline fares were up 7% m/m, a slowdown of sorts from the 10.2% increase in April. Hotel prices were up only 0.4% compared to 8.8% in April. Lastly, the price of personal care services was down 0.6% on the month. Rents have begun to creep up and we suspect the disinflation from this large contributor to overall CPI is now past its cyclical low and will add to overall inflation in the coming months–although far from the extent we have see from other commodities and services.

These price changes underscore our long-held point that supply/demand imbalances are at work–inflation needs leverage and leverage needs higher wage expectations. To be clear, inflation is process not price changes per se and critical to this process is high expectations for salary raises. We illustrate this in the chart below showing the relationship between consumer expectations for income in six months(Conference Board survey) and growth in revolving credit relative to wages. During a recession, everything drops together–no surprise. But in this year, despite seeing higher prices and having higher inflation expectations, consumers are not using credit cards to “buy in advance” and they will not until they believe wages are going to move higher as well.

Inflation is a bust. Commodities will crack next.

We may see a falling US dollar ahead as yields tumble, though Aussie yields are falling even faster.

If so, I will use any pop in the Aussie dollar to get offshore before commodities take it down.

David Llewellyn-Smith


  1. MathiasMEMBER

    Another day… another dollar.

    Good to see markets moving again. Pitty it had to be Friday before they finally did. I guess it gives us something to look forward to on Monday.

  2. MathiasMEMBER

    So Fairfax getting into bed with MB? They must be getting seriously low on there subscribers this month.

    Fairfax is dead. MB is the future.

    The only people who read Fairfax are lonely old Boomers. My guess is Fairfax’s subscriber base is dying each and everyday… and MB’s continues to grow.

    Australians have had enough of American Garbage. This is Australia. We want Australian News.

    Those guys at crikey look alright –

  3. Highest CPI count since the 2008 record which brought us the global financial crisis when oil went to $150 / barrel – United States core inflation rate just hit the highest since the shocks of 1990’s – and the 70-80s oil/inflation crisis before that.

    Inflation is bust!!

    Meanwhile – $4 trillion pumped into the economy by Trump prior to Covid, another $2 trillion on Covid response, then a $2 Trillion infrastructure stimulus, then another $2 Trillion services stimulus – all while supply chains are broken, what is available is bottle necked, massive swathes of economy have closed for good and we are in a massive trade war.

      • Are you actually telling him you are canceling his access because he disagrees with you ????
        Am I understanding correctly ?

        If you want to increase your subscriber base maybe it might help to get a few things right

        Of recent you said

        When 10 year US bond was 1.75% it was going above 2%
        You’ve said iron ore was crashing… but now it’s going to $300 first
        You’ve said at DXY 93, it was going to go much higher
        You said on here that tech was going to get smashed at 12800 Nasdaq and it’s 14,000
        You said AUD was going to collapse at 75c on the head and shoulders
        The list goes on
        They way you treat people and conduct yourself on this site is atrocious

          • I’m virtually done
            I came back really because of all you guys. It’d be great if we could just converse between ourselves I’d prefer that
            We all get things wrong, no one knows everything. I can be a bit extreme but I’ve never rude to anyone
            But the behaviour is really atrocious
            I’d actually pay more to read articles and talk to all you guys
            Genuine there is great information… this is an information site
            The track record on here of financial market forecasts is very poor and to read comments like that is really unacceptable whether paying or unpaid
            I’ve actually read Jimmy’s comment a few times, quite good

            I believe Inflation is a problem and it’s not transitory, the annual CPI figures are high snd they are going to continue to get higher so I think it’s pretty fair to say that

            Anyway I’d pay an extra $100 to not have to be subjected to this.

            I think MB should just post all information like a news aggregation site and let us make our own decision and discuss professionally between each other

        • bcnich, weren’t most of DLS’ claims for those things to really occur in 2022?

          I’m fairly sure he claimed an inflation burst for now, then a calm-down, then the main show in 2022 onwards as US stimulus really kicks in.

          • Bw
            That’s probably not the point for the main part, it’s the conduct
            Anyway honestly I don’t really care. I’m pretty much done on this site. I’ve got better things to do.

            And further to your specifics, there is just too much chopping and changing, I’m getting dizzy

          • It’d suck to see you go, bcnich.

            Yes, DLS can be a bit sharp sometimes – but I’ve learnt with heady personalities like his that they are never intending to be as sharp as they seem to others who are more sensitive by nature (perhaps like you and me).

            As for the calls: I don’t think DLS is chopping and changing, really…he is making short-term comments inside his longer-term narrative. With respect, I believe there’s quite a few commenters on here that aren’t grasping the short-term/longer-term narrative of Dave’s.

            For example, ‘IO to $300???’ is firstly a tongue-in-cheek statement as to the stupidity and volatility of the IO market; but it’s also a short-term comment within DLS’ broader narrative, that he maintains, of a ‘much lower’ IO price in the medium to long-term. I know some have mistaken exactly this point as him changing his mind but, in context, I think it’s really quite clear that the commentary is qualified as shorter and longer-term.

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