DAILY CURRENCY OUTLOOK

* AUD/USD reaches new 5-month high overnight
* US inflation falls in December. First fall since May 2020
* Stronger commodity prices also help support the Aussie

Softer US inflation numbers released last night, especially for the month of December, have seen the AUD/USD rally to a high of 0.6984 overnight – a level not seen since 26th August last year. Economists and markets were anticipating softer numbers across the board but what caught many by surprise was the reading for December, which showed a negative inflation rate of -0.1%. The fall was the first fall since May 2020, when the first wave of COVID hit the US. Markets quickly sold the greenback on the likelihood the US Fed will now be less aggressive on interest rate settings going forward. Markets have already factored in a likely 25 bps rise for early Feb.
Locally, on Wednesday, the ABS released both inflation numbers and Retail Sales for November. As expected, inflation came in at 7.3% YoY, up from 6.9% YoY in October. Notable price rises included housing (the cost of building a new home and rental prices), groceries and travel. Retail Sales also rose, up 1.4% in October against the 0.6% expected. Both sets of numbers will highly likely force the RBA to further increase interest rates when they next meet on Feb 7.