Hot US CPI Boosts Dollar, Bond Yields, AUD Plummets

Sterling, Euro Slump, USD/JPY Soars; Equities Tumble

Summary:

US Consumer Prices advanced in August to an annual 3.7%, stronger than economists expected at 3.6% and matching July’s 3.7%. On a monthly basis, US headline inflation rose to 0.3%, up from forecasts at 0.2%.

US monthly Core CPI (excluding food and energy) was unchanged at 0.3%. Claims for Unemployment benefits in the US in August were at 209,000, unchanged from July. Forecasts were for 211,000.

The Dollar Index (USD/DXY), a popular measure of the Greenback’s value against a basket of 6 major currencies, rallied to 106.57 from 105.75.

The Australian Dollar (AUD/USD) plummeted 1.59% to 0.6315 against 0.6425 yesterday, its lowest finish in 2 weeks. The Kiwi (NZD/USD) tumbled 1.4% lower to 0.5933 (0.6040).

Sterling (GBP/USD) slid to 1.2177 from 1.2277 against the broadly based stronger Greenback and following weaker-than-expected UK Industrial Production data, at -0.7% against forecasts at -0.2%.

The Euro slid back to close at 1.0530 from 1.0585 yesterday. In volatile trade, the overnight high traded was at 1.0640. Germany’s 10-year Bund yield was unchanged at 4.42%.

Against the Japanese Yen, the US Dollar soared to a 149.80 finish, not far from its overnight high at 149.83. Japan’s 10-year JGB yield eased 2 basis points to 0.75% (0.77%).

The US Dollar rose against the Asian and Emerging Market currencies (EMFX). Against the Offshore Chinese Yuan, the Greenback (USD/CNH) rose to 7.3100 (7.2865). USD/THB jumped to 36.40 (35.60).

The US 10-year bond yield rebounded to 4.70% from 4.65% while 2-year treasury yields jumped to 5.07% from 4.96%. Other global bond yields were little changed. Germany’s 10-year Bund yield climbed to 2.78% from 2.77%.

Global equity prices fell after the hot US inflation report. The data underscored the Federal Reserve’s intent to keep interest rates high and quell inflation. Risk appetite suffered.

Other economic data released yesterday saw the UK RICS House Price Index fall to -69% from -68% previously and forecasts at -60%. UK Manufacturing Production (m/m) slid to -0.8% from a downward revised -1.2% from -0.8% initially.

• AUD/USD – The Australian Dollar plummeted against the Greenback to 0.6315 in late New York from 0.6425. In choppy overnight trade, the Aussie Battler hit a high at 0.6431. The overnight low recorded for the AUD/USD pair was at 0.6307.
• EUR/USD – The Euro slid to 1.0530 from 1.0600 giving back the ground gained this week. The broadly based stronger US Dollar flexed its muscles against the shared currency. In volatile trade of its own, the Euro fell to an overnight low at 1.0526.
• GBP/USD – Sterling slid against the Greenback to 1.2177 against 1.2277 previously. The British Pound jumped to an overnight high at 1.233 before sliding lower. Liquidity was thin in this currency pair, and we can expect more volatility ahead.
• USD/JPY – Against the Japanese Yen the Dollar grinded higher to 149.80 New York close, not far from its overnight close (149.83). The Greenback fell short of the 150.00 resistance level, trading to an overnight high at 149.83. Expect intervention talk from Japanese officials today.

On the Lookout:

Today’s economic calendar releases are light as we finish the week. New Zealand kicked off with its Business New Zealand Manufacturing Index which eased to 45.3 in September from 46.1 previously.

China follows next with its September CPI, PPI, and Trade data. China starts off with its September CPI (m/m f/c 0.3% from 0.3%; y/y f/c 0.2% from 0.1% - ACY Finlogix).

Chinese September PPI (y/y f/c -2.4% from -3% - ACY Finlogix), and Chinese September Trade Balance (f/c +USD 70.0 billion from +USD 68.36 billion – ACY Finlogix), Chinese September Exports (y/y f/c 7.8% from -8.8% - ACY Finlogix) and Chinese September Imports (y/y f/c -6.0% from -7.3% - ACY Finlogix).

France starts off Europe with its Final September Inflation Rate (m/m f/c -0.5% from 1%; y/y f/c 5.6% from 5.7% - ACY Finlogix).

The Eurozone releases its Eurozone August Industrial Production (m/m f/c 0.1% from -1.1%; y/y f/c -3.5% from -2.2% - ACY Finlogix).

The US rounds up today’s economic reports with its September Import Prices (m/m f/c 0.5% from 0.5%; y/y f/c -1.6% from -3% - ACY Finlogix) and US September Export Prices (m/m f/c 0.5% from 1.3%; y/y f/c -4% from -5.5% - ACY Finlogix).

Trading Perspective:

As we conclude a volatile week in FX, expect more of the same today. It’s Friday and liquidity will be thin. In Asia, traders will be watching the release of Chinese CPI, PPI, and trade data.

Risk aversion will keep markets nervous. Any large diversions in economic data from current forecasts will produce more volatility.

The VIX Index, sometimes referred to the fear index, which measures expected volatility in markets, stayed bid, settling at 16.69, up 3.73% from yesterday.

US and other global bond yields have been all over the place, trading more like currencies. Investors and traders will be closely watching all markets.

• EUR/USD – After its rally this week, the Euro fell back 0.9% to 1.0530. On the day, look for immediate support at 1.0500 followed by 1.0470 and 1.0440. Immediate resistance lies at 1.0560, 1.0600 and 1.0640 (which was the overnight high). Look for more choppy trade in the Euro today, likely range: 1.0500-1.0600. Trade the range.
• AUD/USD – The Aussie plummeted against the Greenback to to 0.6315 from 0.6425, down almost 1.6%. On the day look for immediate support at 0.6300 (overnight low traded was 0.6307). The next support level lies at 0.6270. Immediate resistance can be found at 0.6350, 0.6390 and 0.6420. Look for another roller coaster day in this currency pair, likely between 0.6300 and 0.6400. Trade the range, nice and wide.

(Source: Finlogix.com)

• USD/JPY – The Dollar soared against the Yen to finish at 149.80, just short of the 150.00 resistance level and threshold. Look for immediate resistance at 150.00 followed by 150.30 and 150.60. Immediate support can be found at 149.40, 149.00 and 148.70. Expect Japan Inc (BOJ, MOF) to jawbone the Dollar lower against the Yen from current levels. It’s going to be another choppy trading session in the USD/JPY pair today. Happy days.
• GBP/USD – Sterling was pounded overnight to finish 1.1% lower at 1.2177 (1.2277). Look for immediate support in the British currency at 1.2170 (overnight low 1.2171). The next support level lies at 1.2140 followed by 1.2100. On the topside, immediate resistance lies at 1.2210, 1.2260, and 1.2310. Look for further choppy trade in this currency pair, likely between 1.2150-1.2300.

Let’s get ready to rumble. Keep those tin helmets on. Happy Friday and trading all. Top weekend ahead.

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