Cooling US inflation, lower bond yields fail to dampen haven dollar

Aussie Slumps on Lowe Comments; USD/DXY Flat After Initial Fall

Summary: US Core Consumer Prices in August edged 0.1% higher from 0.3% in July, missing median expectations at 0.3%. It was the smallest gain since February. US Treasury bond yields immediately turned lower with the benchmark 10-year note rate falling 5 basis points to end at 1.28% (1.33%). Ahead of next week’s Federal Reserve monetary policy meeting, market uncertainty increased. Last week several Fed speakers suggested that the US central bank should reduce its purchases of debt securities by the end of this year. The Dollar Index (USD/DXY), a popular gauge of Greenback’s value against a basket of 6 major currencies initially slid to 92.32 before rebounding to finish at 92.65, unchanged from yesterday. The Australian Dollar slid to 0.7320 (0.7367), two-week lows, after RBA Governor Philip Lowe indicated that virus concerns could delay a shift in policy. Sterling dipped to settle at 1.3813 from 1.3835 yesterday despite mixed UK Job numbers. The Euro was little changed at 1.1810 (1.1814). Against the Japanese Yen, the US Dollar edged lower to 109.65 from 110.00 weighed by the fall in the US 10-year bond yield. The USD/CAD pair climbed to 1.2695 from 1.2655. Asian and Emerging Market currencies were mixed. USD/SGD closed at 1.3438 from 1.3420 yesterday while USD/CNH (Dollar-Offshore Chinese Yuan) dipped to 6.4355 from 6.4435.

Data released yesterday saw Australian Q2 House Price Index climb to 6.7% from 5.4%, beating estimates at 6.2%. Australia’s National Australia Bank’s August Business Confidence Index improved to -5 from -7. Japanese July Revised Industrial Production was unchanged at -1.5%, matching expectations at -1.5%. UK July Average Earnings Index rose to 8.3% against forecasts at 8.2%. The UK’s July Unemployment rate dipped to 4.6% from 4.7%, matching estimates at 4.6%. UK Claimant Count Change increased to -58,600 from -7,800 in July. Swiss August PPI climbed to 0.7%, beating forecasts for a rise of 0.2%. US August Headline CPI in August (m/m rose 0.3%, lower than median forecasts at 0.4%, and July’s 0.5%; y/y was at 5.3% from 5.4% in July). US August Core CPI eased (m/m) to 0.1% from a previous 0.3%, missing expectations at 0.3% and (y/y) eased to 4.0% from 4.3% and estimates at 4.2%.

• AUD/USD – The Aussie Battler slumped to finish at 0.7320 from its opening yesterday at 0.7367. RBA Governor Phillip Lowe indicated in his speech in an online event that the impact of the Delta virus could delay a shift in policy and economic activity. The Australian Dollar was the worst performing major overnight.
• EUR/USD – overnight trading in the shared currency was subdued yet again. The Euro finished little changed at 1.1803 from 1.1810 yesterday. Overnight low traded for the Euro was at 1.1799 while the high recorded trade was at 1.1846.
• USD/JPY – the Dollar Yen pair eased to 109.65 from 110.00 weighed by the fall in the benchmark US 10-year bond yield to 1.28% from 1.33% yesterday. The fall in risk sentiment also weighed on USD/JPY. Earlier in the day, the USD/JPY pair traded to a high at 110.11.
• GBP/USD – Sterling dipped to settle at 1.3812 from 1.3835. The UK Employment report was mixed with an increase in August Wages offset by higher Claims for Unemployment Benefits. The Unemployment rate matched median expectations. Overnight low traded for the British Pound was at 1.3851.

On the Lookout: The US CPI fell more than expected, which initially weighed on the US Dollar. However, uncertainty ahead of next week’s FOMC meeting, and haven support lifted the Dollar Index to a flat finish. Today’s economic calendar sees a data dump which could move markets.
New Zealand kicked off with its Current Account, just released (actual -NZD 1.396 billion from previous -NZD 3.189 billion). Japan’s Core Machinery Orders in July (m/m 0.9% from -1.5% and forecasts at 3.1%, y/y was at 11.1% from 18.6% previously and lower than forecasts at 15.7%. Japan’s September Tankan Index eased to 18 from 33 previously. Australia kicks off with its HIA New Home Sales for August (m/m no f/c previous was -20.5%), Westpac September Consumer Confidence Index (no f/c previous was -20.5%). China follows with its August Retail Sales (m/m f/c 7% from 8.5% - ACY Finlogix), August Industrial Production (y/y f/c 5.8% from 6.4%), and Fixed Asset Investment (f/c 9% from 10.3%). China’s NBS (National Broadcasting System) is scheduled with a press release at 12 noon Sydney). The UK starts off European data with its August CPI (m/m f/c 0.5% from 0.0%, y/y f/c 2.9% from 2.0% - ACY Finlogix), August Core CPI (y/y f/c 2.9% from 1.8%), UK August PPI Input (m/m f/c 0.2% from 0.8%, y/y f/c 10.3% from 9.9%) UK August PPI Output (m/m f/c 0.4% from 0.6%, y/y f/c 5.4% from 4.9%). France releases its August Final CPI report (m/m f/c 0.4% from 0.6%). Eurozone July Industrial Production is next (m/m f/c 0.6% from -1%, y/y f/c 6.3% from 9.7%). Canada kicks off North American reports with its August Headline CPI (m/m f/c 0.1% from 0.6%, y/y f/c 3.9% from 3.7%) Canadian Core CPI (y/y f/c 3.7% from 3.3%). US August Industrial Production round up the day’s reports (m/m f/c 0.4% from 0.9%), US September Empire State Manufacturing Index (f/c 18.1 from 18.3) and US August Capacity Utilisation (f/c 76.4% from 76.1%).

Trading Perspective: Markets will see further evidence in the upcoming economic releases if the increase in the Delta virus infections have impacted performance. The Dollar Index (USD/DXY) rebounded from its overnight lows on the weaker US CPI report boosted by haven support. Uncertainty prevails on the timing of the Federal Reserve’s tapering of asset purchases. Speculators remain long of US bets. Last night’s initial Greenback sell-off was the result of more USD longs bailing. Asian traders will be watching China’s trifecta of economic releases (Industrial Production, Retail Sales and Fixed Asset Investment) closely today. An easing in all components is expected. If the actual results are lower than forecast, this could provide the Greenback with further haven support.

• AUD/USD – The Aussie Battler finished as worst performing major following the comments from RBA Governor Lowe yesterday. Today’s release of the Chinese trifecta of economic data will impact the Aussie. Immediate support for the Battler lies at 0.7310 (overnight low traded was 0.7313). The next support level is found at 0.7290 and 0.7260. Immediate resistance lies at 0.7330 followed by 0.7355 and 0.7380. We could be in for a wild ride on the Aussie, expect a range today of 0.7300-0.7360. Prefer to sell rallies, the Aussie is not out of the woods yet.
• EUR/USD – finished at 1.1803 from 1.1810 yesterday. Overnight trading range was between a high at 1.1846 and a low at 1.1799. Immediate support at 1.1800 looks fragile and should give way to the next support level at 1.1780 (strong). The next support level is at 1.1740. Immediate resistance can be found at 1.1840 and 1.1870. Look for a likely range today between 1.1780-1.1850. Am neutral on the Euro at current levels.
• USD/JPY – The Greenback eased against the Japanese Yen weighed by the fall in US Retail Sales and the 5-basis point drop in the US 10-year bond yield. USD/JPY has immediate support at 109.50 (overnight low traded was 109.526) followed by 109.20 (strong). Immediate resistance can be found at 109.90 and 110.15 (overnight high 110.11). Looking to trade a likely range of 109.50-110.00 today. Watch the US 10-year bond yield.
• GBP/USD – Sterling settled at 1.3813 from 1.3835 yesterday. Overnight high traded was at 1.38510. Immediate resistance can be found at 1.3855 followed by 1.3885. Immediate support for today lies at 1.3800 (overnight low 1.3797). The next support level comes in at 1.3765. Today the UK releases its inflation numbers, expectations are for a rise in both Headline and Core CPI. Anything less than forecast could pound the British currency lower. A spike higher than median expectations will see Sterling soar. An interesting trading day ahead! Looking at an initial range of 1.3790-1.3890.

(Source: Finlogix.com)