Market Drivers April 22, 2015

AU CPI comes in at 0.2% vs, 0.1% lowering chance of cut in May
BoE Minutes show 2 members ready to hike cable through 1.50
Nikkei 1.13% Europe -0.06%
Oil $55/bbl
Gold $1198/oz.

Europe and Asia:
AUD CPI 0.2% vs. 0.1%
GBP MPC 0-0-9 but 2 leaning to hike

North America:
USD Existing Home 10:00

For a change the action in the currency market moved away from the EUR/USD as other major pairs saw some limelight with Aussie and pound catching a bid in Asian and early European trade.

The AUD/USD went in a tear after AU CPI data proved slightly hotter than expected rising by 0.2% versus 0.1% eyed. The trimmed mean CPI came in as forecast at 0.6%. In and of itself the inflation data was not significant and price pressures Down Under remain subdued, but the slightly elevated reading lowered the chances of an RBA rate cut in May prompting a short covering rally in Aussie.

Prior the CPI release the futures markets were suggesting 65%-35% odds that RBA would cut in May. After last night news the chances were reduced to 50% -50%. The Aussie responded accordingly popping 50 pips in the aftermath of the release and then rising steadily to take out the .7800 figure by morning London dealing.

We noted earlier this week that any delay in rate cuts by the RBA along with any delay of rate hikes by the Fed should prove positive for the currency attracting short term carry trade flows. However having reached the upper end of its recent range, the upside in AUD/USD may be limited unless the market begins to price in further delays by the Fed.

Meanwhile in UK, cable also bolted out of the gate on the back of the latest MPC meeting communique. Although the BOE maintained its 0-0-9 vote, two members leaned towards a hike. The communique produced nothing new with MPC members noting that the EZ economy is improving while UK economy shows little change either way. All members agreed that it was more likely than not to see rates rise over the 3 year forecast period indicating that much like the Fed, the BOE is eager to move towards policy normalization in the foreseeable future.

Cable ran through the 1.5000 stops but stopped just short of the 1.5050 level in active London trade as pound short were squeezed mercilessly throughout the morning. Still the 1.5000 barrier has proven to be a formidable resistance over the past month and with UK election still a big unknown further upside in the pair may be limited.

The strength of the anti-dollar rally is going to depend on US data. Most of the recent moves in the majors are less a function of positive events at home and more a result of impatient dollar long liquidating their positions as the prospect of Fed policy normalization appears to move further and further away.

Today the calendar brings little data save for the Existing Home Sales report at 1400 GMT. The market expects a slight bump to 5.04M units from 4.88M units the month prior and of the data meets forecasts it may reverse some of these overnight anti-dollar flows.

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