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All eyes on U.S CPI and Retail Sales as markers for rate hike

By Matt Richardson

The Australian Dollar is stronger today when valued against its US counterpart reaching an overnight high of 0.7835. The dollar’s strength was on the back of positive local data yesterday as the Melbourne Institute´s consumer inflation expectations for October rose to 4.3% which was well above the previous months figure of 3.8%. Australian home loans approvals also rose in August which was up 1.0% doubling the market's expectations 0.5%. The macroeconomic calendar has little to offer today with no scheduled data releases. The AUD/USD pair is currently trading at 0.7820. We now expect support to hold on moves approaching 0.7780 while any upward push will likely meet resistance around 0.7840.

The New Zealand Dollar saw respite from its recent downside movements, finding support at 70.60 US Cents. The release of the food price index, an important part of the equation for Q3 CPI figures, saw food prices fall 0.2% in September. Despite the news there was little movement on the Kiwi and saw eventual movements to an intraday high overnight of 0.7145. With no further news on the formation of a new Government, movements will be dictated by the release of Business NZ Manufacturing Index this morning and opens at 0.7125.

The Great British Pound experienced a roller coaster trading session overnight to ultimately open stronger this morning at 1.3262. The Sterling lived by the fortunes of Brexit negotiations which ebbed and flowed as the session progressed. Initially the Cable felt the squeeze from the EU with Chief Negotiator Barnier revealing that Brexit talks had reached an impasse, sending the Pound plummeting towards 1.3120. The Pound then sharply reversed course on the headline that the EU is open to offering the UK a two-year transitional membership, thus buying negotiations some much needed time should the UK accept. On the domestic front, the Sterling remains capricious with political headlines dominating momentum. Elsewhere, the Pound will have all eyes on the US economic calendar with CPI and Retail Sales data driving direction for its counterpart.

The U.S Dollar edged marginally higher through trade on Thursday, staving off a week long sell off as investors enjoyed an uptick in producer price pressures and a downturn in unemployment claims ahead of a key inflation report this evening. Market’s concerns surrounding the impact of stagnant inflation on interest rate expectations were heightened mid-week in the wake of the FOMC’s meeting minutes and Friday’s CPI and retail sales print are pinned as key indicators in firming a December policy adjustment. A strong read and print above 0.2% month on month and 1.8% year on year will support the Fed’s call for an end of year policy change. Holding on above 112 JPY and forcing the Euro back through 1.1850 we anticipate rates to track sideways into tonight’s all important data releases.