US FX WRAP: Dollar gains on hot PPI; NZD weighed on by stagflation concerns

USD was supported on Thursday due to another hot inflation report. PPI accelerated more notably than CPI. A hawkish reaction was seen across markets as both headline and core PPI readings saw striking accelerations. Particularly, the 1.4% increase in April from March's +0.5%, and most worryingly, that 60% of the rise can be attributed to a 1.2% advance in the index for final demand services (higher energy prices, not the no.1 force). On the other hand, components that feed into PCE were more mixed, showing no clear signal. Collecting the CPI & PPI reports, Oxford Economics estimates that the yearly headline PCE Y/Y figures would hit 3.8% Y/Y, the highest reading since May 2023. Elsewhere, geopolitics had little bearing on USD price action. Updates were generally light as markets await the outcome of the Trump-Xi meeting on trade, Taiwan, and Iran. DXY rose for the second consecutive day to a high of 98.598.

NZD lagged following inflation expectations data coming in above the RBNZ's midpoint forecast. In combination with slowing GDP growth, stagflation concerns weighed on the Kiwi, which saw lows of 0.5920. As a result, Aussie was the preferred currency in the region, and AUD/USD was modestly firmer at ~0.7260.

BRL saw notable weakness after The Intercept Brasil linked presidential candidate Bolsonaro to Daniel Vorcaro, the former chief executive of Banco Master, who was at the centre of a fraud investigation. The update has sparked fresh concerns behind Bolsonaro's challenge to the throne against President Lula in the upcoming October election. USD/BRL remains around the highs of 5.0032 from the session start of 4.8903.