Market Drivers for October 15, 2013
RBA moves away from easing bias sending Aussie to 9550
UK CPI hotter pushes cable to 1.6000
Nikkei 0.26% Europe 0.37%
Europe and Asia:
AUD RBA Minutes willing to absorb higher exchange rates
UK CPI 2.7% vs. 2.5%
EUR ZEW 52.8 vs. 49.2
USD Empire 8:30
The dollar suddenly gained ground in mid morning European trade today as both EUR/USD and GBP/USD plunged more than 50 points in a matter of minutes despite relatively buoyant eco data from both regions. The move higher in the buck was likely caused by growing speculation that US legislators were getting close to a compromise on the US budget and debt ceiling deal with GOP expected to caucus at 1500 GMT today.
The Chinese have also started to assert pressure on US with Vice Finance minister Zhu Guangyan stressing that US must take concrete steps to fend off default. The Chinese have been increasingly vociferous in their criticism of the US budget negotiations with media reports that US budget negotiations creating as much fascination in Beijing as in Washington DC. Still the heavy handed comments and the recent op-ed about the de-Americanization of global economy may prove highly counter-productive providing fodder for the xenophobes in the right wing of the GOP. Nevertheless the markets are clearly trying to pressure the lawmakers to take action and today’s North American trade could prove volatile as a result.
On the economic front the Aussie was the standout of the day rising to just within a whisker of the 9550 level after the release of the RBA minutes which confirmed that Aussie central bank has moved away from its easing bias. In its minutes the RBA noted that there is a substantial degree of policy stimulus and that it will continue to gauge its effects. For now the RBA noted that the rate cut is not imminent, but it left open the possibility for further rate cuts if needed.
Still the RBA’s stance has clearly become less dovish as conditions in Australia have improved and markets now assign a very small chance of a rate cut in 2013. The news boosted the Aussie which has been bumping up against the 9500 level for several days and with the pair now through that barrier it could rally towards the 9700 figure over the next several weeks if the situation in US stabilizes and global risk appetite returns.
Meanwhile in UK and EZ the eco news was mildly supportive with UK CPI printing a bit hotter at 2.7% versus 2.5% eyed and the German ZEW survey increased to 52.8 from 49.2 forecast. Both pairs however quickly plunged as the comments from the Chinese Vice FinMin trumped the data and if the Congress does indeed agree on deal later today the decline in the euro and cable will likely continue with shorts testing 3450 support in EURUSD and 5900 in sterling.
On the other hand if the days shows little progress on negotiations the flows could quickly reverse course as investor fears ratchet higher in the face of the ticking time clock as the October 17th deadline looms ever so close.