Fed Inflation-Fighting Resolve & China Jitters Spoil Mood, AUD Takes Hit From WPI Data

Quarterly wage data released out of Australia disappointed RBA hawks, slightly reducing the odds of a super-sized rate hike at the Bank's June meeting. Both Y/Y & Q/Q WPI prints missed BBG consensus calls by 0.1ppt. The reaction in cash rate futures markets was noticeable but ultimately not too significant, with ~30bp worth of tightening priced for the end of the June meeting as we type. Several sell-side desks tempered their rate-hike expectations at the margin, as focus turns to Australia's monthly labour force statistics, due for release tomorrow.

• Offshore yuan went offered as the decline in China's new home prices accelerated to 0.30% M/M in April, despite measures implemented to support the troubled real estate sector. Resurfacing COVID-19 worry added pressure to the redback, as daily infections in Beijing, Tianjin and the Sichuan province continued to rise, despite further signs of improvement in Shanghai's situation.
• China jitters coupled with regional scrutiny of hawkish rhetoric from Fed Chair Powell, who flagged an "overwhelming need" to control inflation, dented risk sentiment as the Asia-Pac session progressed. Risk aversion applied pressure to Antipodean currencies and prompted participants to seek safe havens.
• The yen outperformed its G10 peers, but USD/JPY remained within yesterday's range, with risk swings stealing the show from local GDP data. The rate unwound its initial uptick as Japan's Q1 GDP contraction proved less severe than projected, even as expectations were low, the surprise could have been attributed to Q4 revisions and lack of growth momentum supported the case for continued powerful easing from the BoJ.
• Inflation data from the EZ, UK and Canada will be published later in the day, on top of U.S. housing starts & building permits. Comments from ECB's Muller and Fed's Harker are also on tap.