A$ Dominates Post May CPI Beat

The BBDXY USD index sits little changed, last around 1266.50. Earlier we got above 1267, but couldn't sustain these levels. This also left us short of intra-session highs from Tuesday's session. The main focus today has been the sharp rise in AUD following the May CPI beat.

• The headline CPI printed at 4.0%y/y above market expectations (3.8%) (and versus 3.6%y/y prior), while a core trimmed mean measure also firmed in y/y terms. Earlier comments from RBA Assistant Governor Kent reiterated the central bank's mantra that nothing is being ruled in or out. Kent added they wanted to see softer underlying core inflation momentum before easing (note the remarks were made before the May CPI print).
• From 0.6645, AUD/USD got to 0.6679 post the print. We hold near these levels in latest trade. Market pricing for the August RBA meeting is now close to 50/50 in terms of a 25bps hike. The A$ has outperformed on crosses. AUD/JPY got to fresh highs back to 2007, printing 106.77. USD/JPY has firmed a touch but didn't breach Monday highs above 159.90.
• AUD/NZD gapped higher on stronger-than-expected AU CPI. The cross hit a low of 1.0852 before surging to 1.0917 and back to May 22 levels. The AU-NZ 2yr swap is 11bps higher at -54bps and is now at the tightest levels since Sept 2022.
• NZD/USD is down a touch, last near 0.6115.
• Looking ahead, we have German consumer confidence and US home sales data out later.