Figures on Wednesday showed that Australian inflation in May rose much faster than expected, back up to 4% and enough to flip the interest rate outlook – traders now reckon a rate hike this year is more likely than a cut.
The Aussie dollar’s rally quickly evaporated, however, much like the Canadian dollar’s rally following surprisingly strong Canadian inflation numbers earlier this week.
Both succumbed to the U.S. dollar, which hit a two-month high against a basket of major currencies on Wednesday. Will the inflation pulse in Canada and Australia show up in U.S. data too, and prevent the Fed from cutting rates?
This is the worry for Asia and emerging markets – a strong U.S. dollar tightens global financial conditions and steers capital towards U.S. assets at the expense of emerging markets.
So does rising Treasury yields, and on Wednesday U.S. bond yields broke out of their recent slumber and spiked higher. Wall Street closed modestly higher, but the dollar and yields may have more influence on Asian trading on Thursday.
Thursday’s Asia & Pacific economic calendar sees the release of Japanese retail sales, industrial profit numbers from China, an interest rate decision from the Philippines, and a speech from Reserve Bank of Australia deputy governor Andrew Hauser.
