AU CPI Signals no Rate Cuts from RBA

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Market Drivers October 26, 2016
AU CPI runs hotter
Dollar drops across the board
Nikkei 0.15% Dax -1.08%
Oil $49/bbl
Gold $1274/oz.

Europe and Asia:
AUD 1.3% vs. 1.1%
EUR GE Import Prices -1.8% vs. -1.9%

North America:
USD Goods Trade Balance 8:30
USD Svc. Flash PMI 9:45
USD New Homes Sales 10:00

The dollar was lower across the board with EUR/USD handily rising above the 1.0900 figure in Asian and early European trade as several days of dollar rallies triggered some profit taking against the buck.

In Australia the CPI data printed hotter than expected, sparking a massive rally in the Aussie that took the unit through the .7700 figure before sellers reappeared. The headline CPI came in at 1.3% versus 1.1% as weather related issues caused a rise in food prices and the climb in crude hiked energy costs as well.

On a core basis the inflation readings were more subdued coming in at 1.3% versus 1.4%, but the data was strong enough to convince traders that the RBA will likely remain stationary for the rest of the year. Last week’s surprisingly weak labor readings created some concern that the RBA may do a surprise rate cut in November in order to stimulate the economy, but as many analysts have noted the given the generally robust GDP figures and now the mildly hotter CPI data there is little reason for RBA to ease this year and that consensus view should prop up the Aussie for the time being.

There was no data in EU session but after two days of shellacking the euro finally found a bid rising to a high of 1.0933 in morning London dealing. The data from the EZ has consistently surprised to the upside this week indicating that a lower euro is helping to fuel export demand and stimulate growth in the region. Today’s move is a natural short covering rally and could lift EUR/USD through the 1.0950 level as the day proceeds.

On the US calendar the docket carries US New Home Sales and flash PMI Services data which is unlikely to have much impact on the market. And prices are likely to remain in a relatively tight ranges albeit with a slight skew the greenback as profit taking continues.

Boris Schlossberg
Managing Director

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