AUD in focus ahead of CPI numbers

The main theme in FX markets was US dollar weakness after US jobs numbers disappointed.

The US dollar index slumped to 79.26 as the long awaited non-farm payrolls numbers fell short of expectations. The reading came in at 148,000 which was well below estimates of 180,000. However the unemployment rate actually fell to 7.2% which was mainly a result of a fall in the participation rate.

Meanwhile, August numbers were revised up to 193,000 from around 169,000. Effectively this data saw expectations of tapering by the end of the year completely wound back and the market is now well into first quarter of next year. There is plenty of talk around a ‘tApril’ now. Fed member Charles Evans has said in the past that he wants to see a 200k print on NFP before pulling the trigger on tapering.

Risk currencies rally

The result was a drop in the USD across the board which helped lift most risk currencies. AUD/USD is the move I’m watching at the moment. The pair pushed through 0.97 for the first time since May and will be in focus again today with CPI numbers due out at 11.30 AEDT. The market is looking for a 0.8% rise q/q which implies a 1.8% y/y run rate. ANZ is expecting an above market consensus print driven by large increases in fuel, utilities, property rates and fruit prices. Just matching this reading will be enough to see the pair extend its gains in the short term. The level I’m watching in the near term is 0.9720 which is the 50% retracement of the drop from April to August for the pair. Should this level be cleared, the next significant level for the pair is 0.9924 which is the 61.8% retracement of the move. Tomorrow we have China’s HSBC manufacturing PMI print to look out for and after a string of positive prints from China, there is some risk of a negative surprise.

EUR/USD took out 1.37 and managed to rally to a high of 1.379. The pair has now taken out January highs and is now at November 2011 highs. With nothing major on the European front, it is clear most of this move we are seeing is USD driven. The key test for the single currency will be tomorrow when we get a raft of PMIs out of Europe. I expect to see some consolidation in EUR/USD heading into this data. GBP/USD has resumed its uptrend and is streaming back towards early October highs. A break through this will see it target January highs in the 1.63 region. Later today we have MPC asset purchase facility and MPC official bank rate votes due out, along with mortgage approvals data.

Yen gains against the greenback

US dollar weakness saw USD/JPY drop from around 98.49 and test the 98 region yet again. All things considered this was actually not too bad for Japan and I feel this may be a result of some stimulus hopes when the BoJ meets at the end of the month. Unfortunately from a trade perspective there is no real trend emerging here and I feel the pair will continue to see consolidation in the near term.

AUD/USD breaks above 0.97

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