The US inflation number tumbled lower, beating expectations and unleashing the bulls. US equities surged on the news, while bond yields fell, as did the mighty US Dollar. The CPI fell to 3%, from 4% and Core inflation dropped below 5%. This was a great relief to markets and the Federal Reserve, who may now be tempted to continue to pause further interest rate hikes. The EUR surged above 1.1100, while the GBP hit 1.3000.
The RBNZ had earlier followed the RBA and the Federal Reserve and hit the pause button on interest rate rises, as was widely expected. This does not mean inflation is in the rear view mirror, but the immediate pressure to act, has subsided. The Bank of Canada had earlier bucked the trend and raised rates by 25 basis points, to 5%. This is coming into line with other major Central Banks and wiping out interest rate differentials, as much as taming inflationary pressures. The softer reserve allowed the commodity currencies to rally strongly, with the NZD jumping towards 0.6300, while the AUD spiked towards 0.6800.