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US Equities Point to a Higher Open

By OFX

The USD fell on Thursday, not helped by the inflation miss yesterday morning. The US dollar index, which measures the greenback’s strength against a trade-weighted basket of currencies, touched a near two-week low of 94.99. The CPI (inflation) numbers were undermined by a slower increase in the cost of rent and falling energy prices, as underlying inflation pressures appeared to cool slightly. The headline number was up 0.1% vs 0.2% and the core was also weaker than expectations at 0.1% vs 0.2%. In a separate report, the number of Americans filing for unemployment benefits unexpectedly rose for the week ending Oct 6th. Claims rose by 7,000 to 214,000 but remain at a 49-year low.

Today the US releases its Export Price Index at 8:30 am, this is followed by a speech from the Chicago Fed President Evans at 9:30 am. Michigan Consumer Sentiment and Expectations are printed at 10 am, this is also follow by FOMC member Bostic speech at 12:30 pm. This will round out this week’s economic fundamentals.

Looking ahead the biggest risk event will be next week when the US Treasury Department releases its twice a year report, the report reviews the currency regimes of the US key trading partners. It was thought that Treasury Secretary Steven Mnuchin was going to saddle up along said President Trump and call China a currency manipulator. These findings have been squashed as Bloomberg is reporting this morning that The US Treasury Department will not say China is manipulating its currency. The yuan is approaching the 7 per dollar level and the PBoC does not seem concerned this would be the weakest level the yuan has ever seen. US equity markets are currently implied to open higher.

The Canadian dollar traded in a tight range through the Asian and European sessions and with no economic data to be released direction today will be dictated by demand. Expected trading range today is 0.7675 - 0.77 cents US, on the inverted pricing of USD/CAD support, is seen at 1.2987 and first resistance is seen at 1.3029.

The loonie has been trading parallel with crude oil prices, and the coloration has been evident this week. WTI crude reached a low of 70.96 dollars per barrel overnight and has since rebounded over 0.50 cents to 71.47 the Canadian dollar is trading at its strongest level since Wednesday’s 1.1% decline against the greenback.

The Canadian dollars next biggest event risk will be on next Friday when we have CPI and Retail Sales released simultaneously.

The euro maintained its positive momentum and held above the 1.15 handle through yesterday after the European Central Bank was confident in its policy meeting minutes for September, released yesterday. It seems policymakers are on plan to end their stimulus program this year. The single currency has also done well against a backdrop of a weakening greenback and is showing signs of making a sustained move through the 1.16 big figure.

In other news yesterday, figures yesterday showed that French Inflation declined for September, falling back by 0.2% after a rebound in August of 0.5%. More recently, German Final CPI printed in line with market expectations this morning.

The pound continued its march higher as it hit a three-week high yesterday. Sterling moved higher in the London morning session, only to lose 20-30 points in quick time as Downing Street stated that Theresa May is not due to make any public statement today, defeating some of the rumors of the overnight. Traders are also a little nervous about any Irish border backstop agreement potentially being open-ended, which is undermining the quid this morning.

In the absence of any domestic data yesterday and today, the market took direction from the Brexit headlines with reports suggesting a divorce deal is close. Insiders reported that PM May called her Cabinet in on Thursday to discuss the subject with one official commenting that “the Prime Minister never brings the cabinet together to tell them what’s going on. That’s not her style. It feels to me like the deal is practically done”. Despite this bump in optimism, Brexit headlines remained confusing and conflicted, as above, which has kept a bit of a lid on any further GBP/USD gains.

Across the Atlantic, the risk-off sentiment spilled over from equity markets and weakened the greenback. Conversely, the pound has been well supported in this environment as the USD decreased substantially across the board.

The Australian Dollar opens this morning moving back through 0.71 cents US, however, investors appear cautious of extending upside gains ahead of a critical US Treasury Department currency report. Having traded sideways for much of the Australasian trading session overnight, the AUD found support following a broader USD and equity sell-off. The AUD edged toward intraday highs at 0.7130 as the US dollar made fresh two-week lows following a weaker than forecast CPI inflation print reduced bets the Fed will raise rates at a faster pace than currently projected.

Attention today remain fixed on shifting risk sentiment and the US Treasuries currency report for direction into the end of the week and weekend.

A good session for the Kiwi overnight as the local unit capitalized on a weaker than expected US CPI print out of the world’s largest economy. NZD/USD rose 40 pips on the news and finished up 1.3% on the day to reach levels around 0.6530. Given the Kiwi was the second best-performing currency on the day, the AUD/NZD was pushed lower, down from 1.0940 to 1.0900.

Global and NZ equity markets also fell for the second consecutive day, worries about the impact of higher oil prices, a sharp rise in US yields and escalating US-China trade tensions have all been put forward as risk off drivers.

On the technical front, NZD/USD remains well supported at the 0.6420 level with any topside moves expected to meet resistance on movements approaching 0.6529.