Dollar Falls As Weak US Retail Sales, Inflation Cool Fed Rate Hopes

Daily AUDUSD

Daily AUDUSD

US treasury yields dropped Friday after USA inflation rates slowed again and retail sales weakened unexpectedly, adding to doubts that the Federal Reserve will raise interest rates again this year.

The unchanged reading followed a drop of 0.1 percent in May, the Labor Department said Friday.

Core inflation - which strips out food and energy - rose 0.1% in June and is up only 1.7% over the last 12 months, continuing a break-out below the 2.0% level, where it remained for more than a year.

United States consumer prices were unchanged in June compared with an expected gain of 0.1% for the month and the year-on-year rate declined to 1.6% from 1.9% and compared with an expected rate of 1.7%.

Adding to the downward pressure on yields Friday was a report from the Commerce Department that retail sales fell 0.2% in June from the prior month.

The dollar was little changed against a group of peers early on Friday, as currency investors remained cautious ahead of US inflation data due later in the session, which is expected to set the greenback´s near-term direction.

The fall in euro zone yields tracked a move lower in US equivalents which came after Kaplan - who is usually fairly centre-ground on monetary policy - made his comments late on Thursday.

The Australian dollar hit a near 15-month high as risk appetite was robust with global stock markets hitting record highs and after dovish comments from global policymakers.

The benchmark S&P/ASX 200 Index and the broader All Ordinaries Index each closed up 0.5 per cent on Friday, and up 1.1 per cent over the week to close at 5765.1 points and 5808.7 points, respectively.

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Food prices were unchanged on the month while energy prices fell 1.6% with a fifth successive decline in fuel oil prices.

Among mid-caps, Carillion CLLN.L saw a small relief bounce from heavy losses this week, rising 1.3 percent after the crisis-hit construction and support services contractor hired HSBC as joint financial adviser and corporate broker, amid speculation it is preparing a rights issue. "It's premature to reach the judgment that we're not on the path to 2% inflation over the next couple of years", Yellen said.

The dollar index, which tracks the greenback against a basket of trade-weighted peers, was up 0.1 percent at 95.828, on track for a 0.2 percent weekly decline.

The highly-anticipated inflation data due later in the day had most Asian currencies subdued on Friday with the dollar losing 0.2 percent to 33.850 against the Thai baht while Chinese yuan lost 0.01 percent to 6.7826.

U.S. West Texas Intermediate (WTI) crude futures CLc1 rose 46 cents to settle at $46.54 per barrel. In particular, core retail sales which exclude automobiles, declined by 0.2% instead of posting an equivalent percentage improvement that was expected by analysts. From what we've seen of recent - both the European Central Bank and the BoJ have made efforts to talk-down their currencies and, if they're effective next week, this could bring a modicum of strength to the U.S. Dollar that would essentially amount to a retracement of the "bigger picture' bearish trend".

Gold prices jumped 1.4 percent to the highest level in almost two weeks on Friday after data pointed to weak US inflation, reaffirming doubts that the USA central bank would again hike interest rates this year. Gov. Lael Brainard said the deterioration in consumer prices could give them pause on a rate hike this year.

Dow Jones closed up by 0.41 percent, S&P 500 ended up 0.47 percent, Nasdaq finished the day up by 0.59 percent. It earlier fell to 2.279 percent, its lowest since June 30.

The loonie was about 0.1 percent weaker early on Friday at C$1.2729 to the dollar but is up nearly 1.1 percent this week.

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