Aussie Flat After CPI

The Australian dollar was volatile around the release of the country’s inflation numbers. They came in roughly in line with expectations, which allows the Reserve Bank of Australia to keep interest rates unchanged for the foreseeable future. The aussie was last trying to break through above the 88 cent level – a level that seems to be attracting a lot of action in recent sessions. It was trading at 0.8790.

The euro was holding near its 1.27 low of the past week at 1.2730, as speculation that the ECB would inject extra stimulus into the ailing Eurozone economy meant more selling of the single currency. Specifically, the rumor – reported by Reuters as it had several unnamed sources that confirmed it – was that as soon as December, the ECB was going to start buying corporate bonds.

The ECB had bought covered bonds for the second consecutive day the previous day after the start of its covered bond purchase program. Business sentiment data due out tomorrow (Markit PMI to be more specific) are expected to show further deterioration of economic conditions in the Eurozone and manufacturing is expected to dip into contraction territory for the first time in 16 months according to analysts. For these reasons, selling the euro is a popular trade right now with many traders eyeing the 1.25 level for EUR/USD in the medium-term.


USD/JPY was knocking on the door of the 107 level, as risk sentiment recovered and US stocks posted their biggest daily gains in a year. The Nikkei 225 was also up, almost making up the losses it posted the previous day. Wall Street was up following strong earnings by companies such as Apple Inc (NASDAQ:AAPL), while the promise of more stimulus from the ECB lifted investor spirits. Despite the improving risk sentiment, gold was also holding near the 1250 level, which perhaps suggests that asset markets rose on the expectation of looser monetary policy (which also helps gold) rather than improving fundamentals.

Looking ahead, Bank of England monetary policy committee meetings and CPI inflation numbers out of the United States will be monitored by market participants.