Early Morning Call: AUD falls as inflation slows; RBA unlikely to hike

The Australian dollar

Since hitting a four-month high a couple of weeks ago, the AUD has dropped nearly 4% against the USD. Australia's monthly consumer price index (CPI) indicator, another measure of inflation in the country, slowed to a 13-month low. It came in at 5.6% for the first five months of the year compared to the same period a year ago, lower than forecast and down from 6.8% in April.

AUD/USD

AUD/USD dropped to a three-week low as the odds of a Reserve Bank of Australia (RBA) rate hike have scaled back slightly after the data release. Markets now see a 30% probability of a 25 basis-point hike in July and estimate that rates are more likely to peak at 4.35% rather than 4.6%.

China overview

In China, profits earned by industrial firms dropped by 18.8% in the first five months of 2023 compared to a year earlier. Profits shrank at both state-owned firms by 17.7% and in the private sector by 21.3%.

Credit Suisse

Bloomberg reported yesterday, after the European market closed, that UBS is looking to cut more than half of Credit Suisse's workforce next month. Eventually, the Swiss bank intends to reduce the total combined headcount by about 30%, or 35,000 people. Credit Suisse currently has about 45,000 employees. This report follows comments from UBS CEO Sergio Ermotti last month. He warned of painful decisions about job cuts without giving details about the number of potential layoffs.

Micron Technology

Micron Technology is set to report on Wednesday after the bell. Wall Street expects the Chipmaker to lose $1.59 per share on revenue of $3.67 billion. This compares to the year-ago quarter, when earnings came to $2.59 per share on revenue of $8.64 billion. Since the beginning of the year, Micron shares have been rising, following a difficult 2022 where the stock lost half of its value. Micron benefited from an improved outlook for the chip sector.

Oil overview

Oil prices fell more than 2% on Tuesday. Investors are concerned that central banks may not be done with interest rate hikes. Yesterday, European Central Bank (ECB) president Christine Lagarde confirmed that "unless there is a substantial change in the inflation outlook," the central bank will "continue to raise rates in July" and thereafter "as far as needed."

In the US, consumer confidence rose to an 18-month high this month, suggesting the Federal Reserve will likely have to continue raising interest rates to slow demand. Last week, Jerome Powell said the market should expect two more rate hikes by year's end. Today, The Fed chairman is due to talk at the ECB forum in Sintra. The application programming interface (API) inventory data had no impact whatsoever on oil prices. Crude stocks fell by about 2.4 million barrels. Gasoline inventories fell by about 2.85 million barrels. Distillate stocks rose by about 800,000 barrels.

Sugar overview

For the past couple of weeks, sugar prices have dropped by about 10%, reacting to favourable weather in Brazil, which paves the way for a quicker and larger harvest this season. Brazil's sugar output was up 18% in the first half of June, while sugarcane yields rose 26%, signalling a possibly larger crop.

A relief for the market that saw sugar prices rally to an 11-year high in April. At that point, traders were concerned about tighter global supplies. At the end of April, India signalled a drop in production, and India's Food Secretary warned that sugar exports would be restricted.