Aussie rallies ahead of some key event risk

While equities stole the limelight in the US with the S&P rallying to a record high, the US dollar made headlines of its own with a continuing slide.

The USD was broadly offered as investors switched their focus to the Fed’s QE tapering timeline. The greenback lost ground potentially due to the temporary nature of the US fiscal deal and speculation that the Fed will not start tapering anytime soon. There has been a raft of Fed speakers on the wires, with Charles Evans and Esther George out overnight.

We are hearing a mixed tone from Fed members at the moment, but the general consensus in the market is that a cautious approach will prevail. Esther George said the Fed should still taper by year end, while Mr Evans is a bit more conservative and would rather evaluate the situation further. This saw the US dollar index down 1% and closing below 80. The DXY is now testing September lows at around 79.61. Any further strain will see DXY testing February lows just under 79. Tonight we have Mr Evans again, Mr Stein and Mr Dudley all speaking.

AUD in focus in Asia today

AUD/USD rallied to 0.9647 and is in for a real test today, with China data and RBA Gov Glenn Stevens set to hit the wires. He speaks at midday and we expect him to re-emphasise what we got from the minutes earlier this week. He is likely to highlight the improvement in the domestic economy, while at the same time saying there is no need for an imminent cut, but the RBA remains ready to act. Positioning in the AUD is certainly more hawkish than anything else though, with some commentary recently doing the rounds that Mr Stevens might actually take a hawkish tone and sound much less dovish at the very least.

This would then be followed up by China data with GDP, fixed asset investment, industrial production and retail sales all due out. GDP growth is expected at 7.8%, which would be a very strong/encouraging reading indeed. The analysts’ range is between 7.4% and 8.2%, so anything in the top end here will be positive. All week I have been talking about potential consolidation of AUD/USD around 0.96, and I continue to expect this to be the case. Short-term levels to look out for will be support in the 0.95 region and resistance around 0.9720. The 0.9720 level is the 50% retracement of the drop from May to July.

Yen strength a concern for BoJ

With the greenback giving up ground, USD/JPY slid significantly and printed a low of 97.74. There has been a degree of stability with the pair sidelined around 98 ahead of BoJ Governor Kuroda’s speech at 17:00 AEDT. Nerves always kick in for traders ahead of speeches by Mr Kuroda as he tends to throw some curlers. At the moment the market is hoping to hear some policy initiatives at the October 31 meeting as Japan looks to keep the recovery on track.

Big moves in Europe

There were some sharp gains in the euro and the pound against the greenback. EUR/USD pushed through 1.36 and traded as high as 1.368, while GBP/USD jumped to 1.617. While most of these moves originated from USD weakness, some stops being triggered and a better-than-expected UK retail sales print helped the two pairs push higher. There is no major economic data due out of Europe today, but no doubt volatility will be on the USD side with plenty of Fed speak.

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