Dollar Done Dipping? Aussie Inflation Next

A midday reversal lower in the US dollar Wednesday may be an early sign that the buy-the-dips dollar trade is due for a break. The Australian dollar was the top performer and GBP lagged but it was an intraday rollercoaster in New York trading. Australian CPI is up next. A new Premium trades has been opened in a 3rd major equity index.

The US dollar rode high into New York trading but finished near the lows of the day. USD/JPY climbed to 104.85 before falling to 104.20. EUR/USD fell to a session low before reversing to a session high.

Most impressive of all was cable, which crashed 120 pips below 1.2200 and touched the lowest since the flash crash before rebounding nearly all the way back.

In the grand scheme of things, the reversals were small. In the past, we have talked about looking for USD dips to buy and it's been a solid strategy but the speed of the turnaround Wednesday and the impending calendar gives us pause.

The Fed has entered the pre-FOMC blackout period with the market pricing in a 17% chance of a hike next week. That's low but not insignificant. So there is a risk of dollar disappointment on the result.

More importantly, it's the beginning of a series of dollar unknowns. The Oct jobs report is next week and the election is now less than two weeks away. Some of those may turn out to be dollar-positive events but the trade in the interim will be to square positions and with dollar longs in the CFTC report at the most extreme since January, that argues for selling.

In addition, economic data lately has been modest like Tuesday's fall in consumer confidence to 98.6 vs 101.5 expected. Corporates, like economic bellwether Whirlpool also talked about US softness.

Another spot to watch is the Australian dollar. The market is pricing only a 28% chance of a cut through Q1 2017 but that could rise dramatically on today's inflation report. The Q3 data is expected to show the trimmed mean up 0.4% q/q and 1.7% y/y. A miss to the downside would send AUD spiralling lower.