Inflation Data Takes the Air Out of Aussie

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Market Drivers July 26, 2017
AUD CPI misses
UK GDP in line
Nikkei 0.48% Dax 0.39%
Oil $48/bbl
Gold $1246/oz.

Europe and Asia:
AUD CPI 0.2% vs. 0.4%
UK GDP 0.3% vs 0.3%

North America:
USD New Home Sales 10:00
USD FOMC Decision 14:00

Aussie took a tumble today in otherwise quiet session as CPI data printed cooler than forecast and Governor Lowe reaffirmed the central bank’s dovish stance on rate hikes.

Australian CPI came in 0.2% versus 0.4% on a headline basis although the core data was in line at 1.8%. This was still below the RBA’s 2% target as price pressure remain muted and therefore create no urgency for RBA to tighten policy any time soon. Governor Lowe confirmed that sentiment in remarks a few hours after the release when he noted that the RBA does not need to move lock step with other central banks that are hiking rates.

The Aussie fell below the .7900 figure touching .7880 in Asian session trade before finding some support in early London dealing. The flow in the pair will be driven, much like everything else in FX today, by the FOMC rate decision due at 1800 GMT. If the Fed maintains its hawkish tone, the Aussie could fall further with .7850 likely in view.

Elsewhere UK GDP came in bang in line at 0.3% versus 0.3% eyed as services were the primary driver of growth. GDP increased from the Q1’s rate of 0.1% as services expanded by 0.5% which manufacturing and construction were a drag. Cable so no reaction to the news as the pair remains above the 1.3000 level ahead of US news.

According to our colleague Kathy Lien, “The biggest problem for the Fed is the decline in annualized consumer and producer price growth. They may be forced to recognize the slowdown in price growth and the impact it has on reaching their 2% inflation target. The positives will probably outweigh the negatives, causing the dollar to extend higher post FOMC but the gains won’t last as investors still question the firmness of U.S. data. The next big report will be non-farm payrolls so between FOMC and NFP, we could see another round of U.S. dollar weakness especially as traders step in to fade Congress after the rate decision. Resistance in USD/JPY is at 112.65, the 20-day SMA while support sits at 110.60.”

Boris Schlossberg
Managing Director

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