AUD/USD Buckles as Yields, Crude Oil and US Dollar Surge Into US CPI

AUD/USD came under heavy pressure as surging crude oil, rising Treasury yields and hotter producer-price pressures revived expectations of a September Fed hike. The Australian dollar led FX majors lower as the US dollar rebounded, while Wall Street weakened ahead of CPI.

AUD/USD Slides as Oil, Yields and Fed Bets Lift US Dollar

Surging oil prices and a hot producer price report on the eve of CPI have weighed on Wall Street sentiment and boosted the US dollar, thanks to renewed expectations of a Fed hike in September. The dollar was also bolstered despite a hawkish hike from the ECB, which only exacerbated fears that the Fed may be forced to respond to rising energy costs rather than domestic demand. Bond traders are also pushing yields higher on Fed bets and growth concerns.

Source: ICE, TradingView

PPI Pressures Extend Beyond Energy ahead of CPI

While headline producer prices landed on estimates, the internals showed that the hot PPI was not just an energy story, with price increases relatively broad-based. The fact that the latest rise in crude oil prices has yet to be fully captured by the data also leaves room for further pressure in coming months and sets the scene for consumer prices later today. Notice that the spread across producer prices is trending higher overall, although it could begin to narrow as higher upstream costs feed through to consumers with a lag.

US yields were also higher across the curve on a combination of monetary policy expectations and growth concerns. Bond traders decided to take on Scott Bessent’s claim that “I am the house”, sending the 30-year yield back above 5.3% — the level that initially triggered Bessent’s original buyback plan three weeks ago — and to its highest level since June 2007. That is a memorable date for seasoned traders, coming just ahead of the global financial crisis (GFC).

Source: BLS, LSEG

AUD/USD Leads FX Lower as US Dollar Surges With Oil and Yields

• Crude oil prices rose 6.5% on Thursday and are up more than 11% from Friday’s close, with WTI trading around $103 and Brent now above $107.
• The US dollar index enjoyed its best day in nine, is on track to form a bullish pinbar and has formed a three-bar bullish reversal (morning star) on the daily chart.
• The Australian dollar was the weakest FX major, with AUD/USD falling more than 0.8% to mark its worst day in 56.
• The New Zealand dollar was not far behind, with its 0.75% decline sending it to a six-week low.
• EUR/USD broke out of its rising wedge pattern, realigning with the bearish move from the 1.1712 top and bringing a move towards the 1.1560 base into focus.
• USD/CAD bounced for a second day, in line with my near-term bullish bias.
• USD/JPY enjoyed its best day in 23, after showing mean-reversion clues following its 750-pip decline in just five days.
• Gold fell 1.2%, but for now is holding above last week’s low — an invalidation point for my near-term bullish bias outlined earlier this week.
• The Nasdaq led Wall Street lower with a 1% decline, following the warning signs from weak breadth highlighted in yesterday’s article.
• S&P 500 futures fell 0.59% to a 27-day low, while the Dow Jones is teasing a break of 52,000 after its fourth consecutive daily decline.

Source: LSEG

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AUD/USD Technical Analysis: Australian Dollar vs US Dollar

Implied volatility is finally curling higher, with the 1-week now 0.783 points above the 1-month, showing traders foresee more volatile conditions in the coming days. AUD/USD formed a notable bearish engulfing candle, finally seeing momentum turn after a multi-week rally that had been showing signs of exhaustion into resistance.

Note the two small shooting star candles just above 72c, showing bulls were running out of steam, while the 1-week implied volatility band has widened to 0.7086–0.7227. Perhaps more interestingly, risk reversals are now curling lower, showing that options traders have increased their demand for puts — or downside protection — relative to calls.

With the US dollar continuing to look oversold heading into CPI, and the prospect of a September Fed hike still in play, AUD/USD could be looking at a pullback towards 71c over the coming weeks if risk appetite remains dented.

Source: ICE, TradingView