For an avowed AUD bear, Friday was about as depressing a day as it has been all year, AUD/USD coming within a pip of its 2016 high of 0.7835 and closing at its highest level since May 21st 2015.  We’ll put something out later Monday on where we stand with our forecast for AUD down to 0.70 – it looks a long way down from here.

Downside surprises on US headline and core CPI (the fourth in succession) retail sales and consumer sentiment, made it a miserable day for the US dollar. Combined with the VIX falling further below 10 and re-testing the 9.36 year-to-date low, this tells you just about everything you need to know about the AUD’s 0.7832 NY closing level.

Core CPI printed 0.1% against 0.2% expected to hold at 1.7% year-on-year; retail sales fell 0.1% against +0.2% expected with core measures also weak, while the University of Michigan’s preliminary July consumer sentiment index dropped by 2 points against an expected unchanged reading. Is post-election Trump-related optimism finally wearing thin?  The only saving grace was industrial production that printed a little stronger than expected thanks to an ongoing revival in mining investment (i.e., further lifts to shale oil production).  The Baker Hughes weekly rig count on Friday showed another 2 US rigs coming on line, to a total of 765.

In stocks, JP Morgan, Citi Group and Wells Fargo all reported better than expected earnings but their stocks all finished lower – seemingly on the interest rate message from the US data (the ‘higher yields means stronger earnings’ narrative suffering a setback).  The S&P nevertheless finished 0.47% higher at 2,459.27 to be 1.4% on the week. The VIX lost another 0.39 to 9.51, 1.68 points lower on the week (the 9 June low was 9.36, so closing in on that).

In FX, across-the board USD weakness saw the DXY -0.6% to 95.153 and to its lowest level since mid-September 2016 and the BBDXY -0.68%.  AUD posted the strongest gains in G10, +1.31% to 0.7832.  In rates the erstwhile global sovereign yield back-up suffered a further small set back Friday thanks to the US data calendar.  10s were -1.2bps to 2.333% (and so reversing most of the immediate post CPI/retail sales drop, to be -5.3bps w/w).

In commodities, dollar weakness continues to provide across-the-board support, with oil adding another 50 cents (WTI to $46.54 and up $2.31 on the week.  Gold added $17.8 to $1,227.5 and is $10.20 higher on the week.  Iron ore lost 20 cents Friday but is $2.94 up on the week to $65.74.

Coming Up

We’ll be looking to developments in Washington this week as a major market swing factor, specifically the progress of otherwise of the Senate version of a Health Care Reform bill. Abandonment of the bill – if more than two Republicans commit to vote against – would deepened the sense Trump’s whole policy agenda is dead in the water; progress could help remove some of the current Trump discount factor weakening the dollar.

It’s a week ahead where both hard data and central bank speak should both be influential, though in the wake of Friday’s CPI heavyweight US numbers, their calendar is pretty sparse (some state PMIs on Monday (NY) and Friday (Philadelphia) the highlights.  Canada CPI and retail sales – both Friday – may be more significant in the context of a market that confidently predicts a quite early follow-up to last week’s Bank of Canada rate rise.

The highlight of the week should be the ECB on Thursday, where according to a Reuters poll published Friday, the economics profession looks quite evenly split on whether the current QE-easing bias will be dropped (i.e. the expressed willingness to extend size and/or duration of the current €60bn per month bond buying). If it is dropped (as NAB thinks likely) this could well be the cue for a fresh bout of Euro buying. We also have the BoJ on Thursday, but they won’t be changing their message – in fact a downgrade to their inflation forecast is the risk.

Locally, it’s a heavyweight central bank/data combo with the June Labour force survey on Thursday (NAB +15k and unchanged 5.5% on unemployment), RBA minutes on Tuesday and a speech from RBA deputy Governor Guy Debelle on Friday titled “Global influences on Domestic Monetary Policy”.  As well as being interesting in its own right, Mr Debelle much surely be relishing the prospect of not having to deliver yet another speech on the new global FX code of conduct.

We’ll also hear from Alex Heath, the RBA’s Head of Economics Analysis, at the Women in Economics panel at the Australian Conference of Economists in Sydney on Tuesday, and Michele Bullock (Assistant Governor – financial system) at a conference in Melbourne on Thursday.

New Zealand’s Q2 CPI data is on Tuesday, of interest in its own right but also since it can sometimes inform us about risks to forecasts for Australian CPI due next week.

China has Q2 GDP this morning (12:00 AEST) alongside   its slug of activity readings for June today, covering industrial production, retail sales and investment. GDP is expected to print at 6.8% y/y versus 6.9% in Q1. Retail sales and investment annual growth rates are seen down 0.1% and industrial production unchanged on May.

Overnight

On global stock markets, the S&P 500 was +0.47%. Bond markets saw US 10-years -1.25bp to 2.33%. In commodities, Brent crude oil +1.01% to $48.91, gold+0.8% to $1,228, iron ore -0.3% to $65.74, steam coal +0.2% to $83.95, met. coal -0.6% to $163.00. AUD is at 0.783 and the range since Friday 5pm Sydney time is 0.7727 to 0.7836.

For full analysis, download the report

• Markets Today: 17 July 2107 (PDF, 1MB)

For further FX, Interest rate and Commodities information visit nab.com.au/nabfinancialmarkets

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