Aussie holding above .78 cents; traders watching China and metal prices

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The Australian dollar was under pressure at one point (overnight) trading down to 0.7817 before recovering a little poise to 0.7844. There is not much in the way of AUD specific catalysts today, although the Westpac leading index of economic growth is interesting to me. So traders will be watching metals markets, the Chinese congress, and waiting for the release of very important employment data tomorrow.

As it stands technically a break of 0.7815 would suggest the Aussie dollar is heading lower. Indeed that would suggest move back toward the recent lows around 0.7737.

Other commodity currencies barely moved after a relatively robust days trade. The Kiwi traded in a 0.7146/7210 range and is largely unchanged now at 0.7168. The Canadian dollar too came under pressure at one point with USDCAD trading up toward the range high with a print around 1.2590 overnight. But it’s back at 1.2525 now.

The US dollar was stronger overnight but with the exception of the Euro, Pound, and Swiss franc has largely given up those gains as the night rolled on. Overnight Philly fed president Patrick Harker again highlighted why the Fed is getting worried about the chance that inflation returns at some point. He said that the while there are regional disparities there is very little overall slack in the US jobs market. That just reinforces why the news that maybe John Taylor will be the next Fed chair buoyed the US dollar the previous night and against the Euro and a mildly dovish BoE impacted Sterling. That is, traders know that the Taylor rule supports where the Fed is suggesting it is going to take rates across the course of the next 15 months – toward 2.5%, perhaps a little higher.

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For me, though the USD index needs to take out 93.75 first up and then 94.15/25 if it is to kick higher once more.

The corollary of that is that the Euro needs to fall below 1.1730/35 and then 1.1660/70 for its fall to intensify. In many ways, only the European Central Bank (ECB) can engineer that given that data continues to support the notion that the European economy is growing along with the rest of the globe. The BoJ has been able to resist rising bond rates, and thus a stronger Yen with innovative monetary policy and targeting a 10-year bond rate around zero percent. Is that the path the ECB may have to take as it winds down its QE program? It’s worth thinking about as US rates will inevitably continue to have upward pressure and thus support a stronger US dollar.

Sterling fell out of bed overnight and has lost half a percent against the US dollar day on day to sit at 1.3180 this morning. But that percentage fall belies the fact that it’s around 1 full cent from the high GBPUSD traded up to earlier in the day. Headline inflation for September printed 3% year on year, with the core at 2.7%. That would seem to support the chances of a rate hike. But in testimony to parliament’s Treasury Committee Mark Carney didn’t sound overly hawkish and Silvana Tenreyro, who is an external member of the Monetary Policy Committee, said the upward pressure on inflation from sterling weakness will start to wane in the coming months. Throw in comments from the BoE’s deputy governor Dave Ramsden said he was not part of the majority on the MPC who believes a rate hike is likely to be needed in the months ahead because he sees little sign of labour market price pressures.

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It leaves the pound under a little pressure now with traders clearly confused as to the outlook given the 1.3120-1.3337 range over the past 4 trading days. Downside looks the most probable path at present, however.

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