US CPI data overnight was a little bit weaker than expected overnight with the headline rate on consensus at 0.3% month on month, while the core reading was slightly softer at 0.1 $ vs. .2 % expected month on month.
The USD sold off initially on the core print, but quickly retraced, given the volatile nature of this month to month measure. The slight miss was insufficient to derail the prospects of a December Fed lift off but certainly continues to support the gradual and flat pace of rate hikes into 2017, sponsored by Fed Chairperson Yellen’s recent rhetoric.
Recent polls are pointing to a decisive advantage for Hillary Clinton in the swing states, consolidating her recent move and she now apparently holds a significant advantage in the all-important race for electoral college votes. I suppose the most vexing question in US politics these days is how could Hillary possibly lose. Bipartisan Gridlock here we come!
Equity markets again switched bearing overnight after more brawny than expected corporate earnings reports.
Former CIA official, Jami Msicik thinks that North Korea could be a significant threat to the US, in the wake of the US military detecting another failed missile launch over the weekend. This war drum beating is always a concern for regional currencies and dollar-yen. So far little action on the headline but as usual, it is worth monitoring.
Very active session on the Australian fixed income market on the tail of yesterday’s Governor Lowe speech and the RBA minutes release. The newly first time issued 30 Year Aussie Bond continues to be hoovered by foreign investors providing a solid foundation for the Aussie dollar.
Despite the fact that the RBA maintained a neutral stance, bond investors continue to bank on a rate cut. While the RBA appears to be in no rush to cut at this time, the door is slightly open after the RBA October minutes indicated,
Q3 CPI data and an update of its forecasts would be available at its November policy meeting, which would provide an opportunity to consider the economic outlook, assess effects of previous rate reductions and review conditions in labor and housing markets.
In the meantime, the AUD should continue to enjoy its lofty status as Governor Lowe, not surprisingly, appears to be adopting his predecessor’s moniker of the “reluctant cutter,” which should support the Carry Trade element into the Aussie basket of assets.
And while the stars are falling into place for the Australian dollar, with buoyant global risk appetite and fundamental domestic forces, we have to be cognizant of the numerous failures to convincingly breach the .7700 level especially as we enter the weighty part of this week concerning event risk. Currency moves are getting ” edgy” and traders will likely maintain a cautious tack through the post-ECB conference where traders will be eagerly awaiting Draghi’s views on the recent ECB taper speculation.
The NZD has been getting a lot of airtime overnight, as yesterday’s CPI print not only supports the notion that Global Deflationary pressures are abating, but it is quite evident that the New Zealand economy is clocking at a hot rate.
A bit of a chop fest overnight as USD/JPY pair yo-yo within the 103.75 -104.25 corridor but the focus for yen traders remains the cross yen appeal, with AUD/JPY the primary driver as the pair makes some very impressive and constructive reaches. On the USD/JPY front, look for US fixed income and global risk appetite to dominate catalysts as the next Japanese domestic driver remains a bit foggy at this stage.
Chinese yuan
Traders are sitting tight awaiting the GDP print as both head and tail-risk come under the highlights.
Emerging Market Asia
The stronger USD had not translated into a higher EM Asia as caution rules the day ahead of the China GDP. Rigging has rebounded from the weekly lows as crude oil inventory data rose less than expected, underpinning oil prices. Global fixed income markets have settled after last week sell off and bond outflows are reversing slightly.