AUD Rallies Hard as CPI Remains Stubbornly High

AUD

The Aussie Dollar found its footing following the better than expected CPI data yesterday, opening higher this morning against all major currency pairs. Asian equities in the green with ASX + 0.2%, Shanghai Comp +0.8%, NIKKEI +0.7%. Commodities were mixed with Crude Oil +3.3%, Natural Gas +6.6%, Gold -0.1%, Silver – 0.2% and Iron Ore +0.1%. Australian CPI data and Trimmed Mean CPI q/q (which removes the most volatile items in the measure) both came in above expectations at 1.8%. Annual inflation in Australia has shot to 32-year highs, rising up to 7.3%, from 6.1%, the highest since 1990 and almost three times the pace of wage growth. This data release will be worrisome for the RBA which has expectations of core inflation peaking at 6.0% in the December quarter, with headline inflation topping out at 7.75%. AUD was up across the board as one would expect as markets repriced the change of the RBA reverting to a 50bps rate hike on Melbourne Cup Day next week. A less exciting day ahead for Aussie data with only the Import Prices pencilled in at 0.8%, previously at 4.3% and the RBA Annual Report. Eyes will be on the ECB interest rate decision tonight (see below).

USD

The Aussie Dollar gains over a cent against a softer Greenback opening this morning at 0.6488, having briefly traded above the 0.65 handle early this morning. US Equities were mixed with the S&P 500 -0.5%, Nasdaq -2% and the Dow Jones flat. The US data missed expectations again; Goods and trade balance came in -92.2B expected at -87.2B, Crude Oil inventories also came in worse than expectations at 2.6M penciled in at -0.3M. On a slightly more positive note Prelim Wholesale Inventories m/m and New Home Sales both came in slightly above expectations. Looking a little further north, The Bank of Canada delivered a smaller than expected 50bp hike taking the cash rate to 3.75% (taking a leaf out of the RBA's playbook). Forward guidance from BOC remains for further hikes with the key line retained “the Governing Council expects that the policy interest rate will need to rise further” though it was noted that the BOC was getting closer to the end of the tightening cycle. A data heavy day ahead from the US, with the most important being Advance GDP q/q being penciled in at 2.3%, a 2.9% jump compared to the most recent figures, a miss in this data could see further USD weakness. Other data out today includes,  Advance GDP Price Index q/q, Core Durable Goods Orders m/m, Durable Goods Orders m/m, Unemployment Claims and Natural Gas Storage, so plenty of room for market volatility.

EUR

Aussie strength continued into the AUDEUR pair, rallying to heights of 6472 before slightly dropping off to open up this morning at 0.6433. European Equities were also in the green with DAX +1.1% and CAC +0.4%. A quiet day for European data yesterday only having the Belgian NBB Business Climate coming in under expectation, M3 Money Supply y/y coming in 0.3% above expectation at 6.3% and Private Loans y/y coming in 0.4% under expectation at 4.4%. EURUSD broke parity for the first time in over a month, opening this morning at 1.0078 attributed to a weakening US Dollar evident in a 1% drop of the DXY. Potential for volatility on the cards tonight with the ECB expected to raise interest rates by 75bps, bringing it to 2%. Inflation remains the top concern for policymakers and there has been little evidence of improvements on that front since the last meeting, with headline CPI hitting 9.9% y/y in September. Markets will be keeping an eye on the commentary following the rate release at the ECB Press Conference along as well as the Monetary Policy Statement following shortly after.

GBP

A lackluster few days of trade on this cross, the AUD opening only slightly higher this morning at 0.5579.  The FTSE in the green closing up 0.6% inline with broader global gains in equities. No data out yesterday, and a quiet day ahead with only the CBI Realized Sales pencilled in at -15 previously at -20.

NZD

We continue to rally against our neighbors across the ditch opening higher this morning at 1.1138. No data out today. Yesterday we saw the ANZ Business Confidence figures released, coming in at -42.7 coming in -6 worse that previous numbers, indicating further pessimism in NZ business confidence and activity levels. No more data for the Kiwis until next week with the most important release being Employment Change q/q and Unemployment Rate on Wednesday.