Risk FX struggles against the USD

The main theme in the FX space was USD strength on the back of the CPI data.

Source: Bloomberg

Core CPI (+0.2% versus +0.1%) in the US came in slightly ahead of estimates and this saw the greenback bid higher against the majors. USD price action was also driven by some Fed commentary, including Fisher, Williams and Bullard.

Mr Bullard was perhaps the most aggressive after saying confidence on inflation will be lifted by January core CPI, once again calling on the Fed to remove the ‘patient’ phrase at the March meeting. With this in mind, risk currencies struggled against the greenback. The AUD has been coming back to earth with yesterday’s capex numbers setting the tone for the local currency heading into next week’s rate decision.

Today we have private sector credit due out. The swaps market is now pricing in over 50% chance of a cut next week. While consensus is for a cut, it seems it’ll be a line ball call. After testing $0.7900 yesterday, AUD/USD is back below $0.7800 now.

While China stimulus talk might have a bearing on sentiment, I feel traders will remain inclined to sell the AUD into strength. Any moves to $0.7900 are likely to be taken advantage of given there is a downtrend resistance line that kicks in around that region. There is some support at $0.7781, which is the 23.6% retracement of the January to February drop.

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