USD/JPY found an early high above 107. but spent the balance of the session dribbling a little lower. A very slight gain in the EUR/USD was enough to keep EUR/JPY narrowly tracking sideways. Cable, too, drifted slightly north, as the market awaited the MPC Minutes today.
NZD and AUD also mainly drifted higher in the session today. the AUD had a bit of a wobble on the release of Q3 CPI data, plunging below 0.8750 and jumping back up again nearly as quickly. The data confirmed the inflation outllok in Australia as benign (with the exception of housing – (see bullets, above)).
Oil and gold pretty much laid out a sideways track during the session too.
October 22, 2014: The Bank of Canada will announce their interest rate decision at 10 AM ET. Although, the overwhelming expectation is for no change, Adam Button, provided the fundamental backdrop of the nuances that might send the pair away from the current level. You can read his report HERE.
This video will take a look at the technical levels that are the most important for the USDCAD through the report.
The Forex Market is volatile. Technical Analysis helps to define and limit risk for traders.
“the economy still carries a fair amount of slack (the jobless rate is rising and rates of capacity utilization are below average), wage pressures are at multi-decade lows, corporate pricing power is weak, and the pass through of lower AUD to higher prices for imported products will not continue indefinitely”
Global inflation pressures also easing
Forecasts inflation to stay in the bottom half of the RBA’s comfort zone in the quarters ahead
RBA has scope to lower the cash rate, should it become necessary to provide further support to demand
Doubts this will happen
“low inflation, alongside macro-prudential policies likely to be announced some time soon, which will mitigate risks in investor housing, mean the RBA will have scope to move. We believe, however, that it would take a confluence of pretty adverse factors to convince the ‘reluctant cutters’ at the Bank that further policy action was needed”
Say Q3 CPI data unlikely to have much bearing on the monetary policy debate
“While the RBA may need to upgrade its forecasts due to the weaker AUD (its latest forecasts were based on an AUD of USD0.93), they will be willing to accept inflation in the upper end of the 2-3% target band amidst weak labour market conditions, subdued capital investment outside of mining and downside risks emanating from Chinese growth and commodity prices”
ANZ retain their view that the RBA will remain on hold for a considerable period
First hike forecast in May-2015
We are seeing a recovery in housing inflation
Dwelling purchase costs rose 1.1%qtr which is a strong number following from the 1.6% rise in Q2
Rents continue to rise around trend with a 0.7% rise in Q3
We are seeing distinct weakness in consumer discretionary items in particular clothing & footwear (–1.0%qtr), and household contents (0.4%qtr) and a seasonally soft 0.6% rise in holiday travel
In a nutshell, the recovery in housing is underpinning domestic inflationary pressure but the weak consumer market (and most likely the increased competition in this space) is providing a significant offset despite the lower AUD. So while the print was broadly in line with our expectations, the weakness in consumer discretionary goods suggest that the outlook for inflation remains quite benign even give the recent weakness in the Australian dollar
Matthew Circosta, an economist at Moody’s Analytics in Sydney:
Lower inflation “certainly supports their case to keep monetary policy steady”
“There are other factors that they’re going to have to take into account when they’re setting policy and that’s the currency and the global risks that are playing out, but the bias is certainly toward monetary easing.’
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