CPI data crucial for the Aussie’s next move

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The Aussie dollar is precariously placed this morning at 0.7775 after falling from a high around 0.7825 yesterday afternoon.

That makes the release of today’s Q3 CPI a huge event for AUDUSD traders who seem to be slanted short term toward a weak CPI result.

Now I’ve written much this week about today’s CPI. Economists average forecast is for a 0.8% print with a range of 0.7% to 1.2%. A result 0.1% either side of consensus would garner little market reaction. But if we see a print of 0.6% or less or a print of 1% or higher and we’ll see a decent reaction We’ll know at 11.30am AEDT.

For the moment though the bears have the whip hand in Australian dollar trade and it’s up to today’s CPI to disabuse them, or not, of their selling.

Currently, the AUDUSD is down 0.38% after a sharp fall from 0.7820/25 late yesterday afternoon, early evening. I had a mentee with me yesterday and I was showing him the set up for an Aussie dollar short on the 15-minute charts where AUDUSD had rallied from 0.7796 to yesterday’s high and the trendline that supported that move.

The break saw the AUDUSD fall for the next two and a half hours before finding some support.

But it remains under pressure. So, it’s going to be an interesting day ahead for the AUDUSD.

It’s almost impossible to think that we won’t see it either at 0.7730 and heading south or back up at 0.7825/35 and testing resistance once the CPI is released. I say that because this is a very important inflation report for the market because it will so strongly inform opinion as to what the RBA is likely to do in the next 6 to 9 months.

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A solid report – a print of 1% or more – coupled with the NAB business survey, improved consumer sentiment, and employment will embolden the bulls. A low number, say 0.5% or 0.6% would reinforce what the RBA said recently – that just because everyone else is raising rates doesn’t mean it has to.

Looking at the charts the 4 hour suggests that 0.7765/70 needs to hold to avoid a full round trip back to the 0.7730 region where the recent run to 0.7897 began. A break of 0.7730 would open the way to 0.7650.

In other forex news, traders just won’t give up on the Euro as we await the ECB’s decision this week on the taper. The consistent narrative that seems to run through markets at the moment is that it is going to be very difficult for the ECB to deliver a taper and outlook which will surprise markets enough to weaken the single currency. I have great sympathy with that view. Mario Draghi and his colleagues could, of course, follow the BoJ’s approach. That would be a surprise and would likely weaken the Euro. But the counter-argument is that at these levels of the Euro the EU is still doing well and the recovery is gaining traction. Anyway, EURUSD is sitting, becalmed, around 1.1756 this morning hardly changed from the previous day.

GBP came under pressure again in the past 24 hours as it backed away from overhead trendline resistance and traders reappraised the outlook for the BoE after the previous day’s comments from BoE deputy governor Cunliffe that the November rate rise remains an open question. You can see the setup for GBPUSD in this chart. Resistance is 1.3230 and support 1.3000/20. GBPUSD is currently sitting down half a percent at 1.3127 – about mid-range.

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In DXY terms the USD is flat at 93.93. 94.25 still needs to break to signal the next move is on. USDJPY is higher though back up at 113.84 for a rise of 0.4% over this time yesterday. USDCHF is half a percent higher at 0.9906 and the Canadian dollar continues to drift as traders await the BoC meeting and interest rate decision tonight. My sense is the bank will pass on the rate hike for two reasons. First, they don’t want to see the CAD strengthen again. More important though is the second reason. The Canadian Citibank Economic surprise index has collapsed from over 100 in early September to -13.1 this morning. That is, Canadian data has been universally weaker than expected – and my a decent margin – for the past 7 weeks. USDCAD is at 1.2680, up 0.2%.

Kiwi traders voted with the feet – or should I say sell button – again yesterday afternoon as the incoming government reaffirmed a commitment to review the Act under which the RBNZ conducts policy. Why the inclusion of an employment mandate is so controversial for traders and why they are selling the Kiwi so heavily is best explained in the abstract rather than the specific. That is, it’s not the dual mandate which is a big deal it’s the interventionist tendency of the Labour, Greens, NZ First coalition that it speaks to which has traders nervous. Uncertainty folks. Uncertainty is poison. The question now is whether the NZDUSD will stop at 68 cents once it’s made the round trip back to the low. It should. But if 0.6800 breaks the target becomes 0.6535.

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