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Analysts at ANZ explained that markets had a risk-off feel overnight with equities, yields, USD and commodities all heading lower.
“Volatility continued its push higher too. The USD was on the back foot throughout the day as firmer-than-expected German Q3 GDP data lent early impetus to the euro. Sterling, meanwhile, remained overshadowed by domestic political considerations and a slight downside miss in October inflation, which underpinned expectations of a very gradual and shallow tightening in monetary policy. Fixed income remained supported, with curves continuing to flatten. The fall in oil and other commodity prices (WTI down 2.1% to $55.60/bbl) may have contributed to that better fixed income tone. Equities were also under modest downward pressure with the major US indices down 0.2-0.4% and Euro Stoxx 50 0.5% lower”.
AUD/USD consolidates awaiting the next catalysts.
AUD/USD trading with a bearish bias.
AUD/USD has remained in a consolidated phase as we progress towards the Tokyo open. The Aussie met a four-month low at 0.7609 following a strong NAB August business conditions survey result. 0.7639 was scored ahead of the Chinese data dump that only proved to disappoint, sending the Aussie back to where it came from.
The European session bulls only managed a score of 0.7649 the high in late London before supply took the pair back to 0.7612 where bids were attracted for a drift towards the 21 hourly SMA at 0.7629. In NY, the pair consolidated and was supported, despite poor performances from the commodity sector, on a weak greenback. Next up, we have Aussie jobs as the domestic data after US retail sales / CPI.
US CPI / retail sales preview – Nomura
AUD/USD 1 day:
“Survived the first break below its two-week-old range of 0.7625-0.7730, but not out of the woods and remains vulnerable to a retest,” explained analysts at Westpac.
AUD/USD 1-3 month:
“We look for AUD/USD to finish the year around 0.76, so long as markets maintain a very high probability of a Fed interest rate rise in December along with a neutral RBA outlook deep into 2018 and commodity prices remain around recent levels (14 Nov),” the analysts explained on their wider outlook.
Analysts at Commerzbank explained that AUD/USD has started to erode Fibo support and the recent low at 0.7633/25, it is under pressure. “Failure here targets the 2016-2017 uptrend line at .7479. Key near-term resistance remains mid-October high at .7896 – its stays immediately negative below here. Initial resistance is the near term downtrend at .7728. Where are we wrong? Above the .8162 May 2015 peak lies the .8295 January 2015 high,” the analysts added.
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Analysts at Nomura explained their outlook for the key US events ahead today in CPI and retails sales.
CPI: We expect headline CPI to increase by only 0.1% (0.112%) m-o-m in October (Consensus: 0.1%) as a steady gain in core components was likely offset by lower energy prices. Our forecast for y-o-y inflation is +2.0% (2.048%) (Consensus: 2.0%). After a sharp increase in September, retail gasoline prices reversed the increase to some extent in October, leading to a 1.0% decline in the aggregate energy price index.
Excluding food and energy, our forecast for core CPI is +0.2% (0.210%) m-o-m in October (Consensus: 0.2%) after a slightly weaker-than-expected reading of +0.1% (0.127%) in the previous month. Although core goods prices continued to make negative contributions to core CPI from March through September, we think that there are some inflationary pressures on core goods prices in October arising from various factors such as hurricane recovery efforts, the lagged effect from higher import prices and positive payback of lower drug prices in the previous month. Altogether, we forecast a y-o-y rate of 1.8% (1.759%) for core CPI in October (Consensus: 1.7%). We expect CPI NSA to be 246.680 (Consensus: 246.633).
Retail sales: We expect core (“control”) retail sales to have increased a healthy 0.4% mo-m in October (Consensus: 0.3%), in line with healthy labor markets and steady income gains. The hurricanes had varied effects on September core retail sales. For October, we expect core retail sales to have recovered mostly from any residual impact from the hurricanes. Among noncore components, we expect sales at auto dealers to have declined slightly. October light vehicle sales slowed from the strong pace in September, which was boosted by high demand for replacement vehicles following the hurricanes. Although there still was some residual replacement vehicle demand in October, it was not enough to sustain the strong pace in September. Moreover, retail gasoline prices trended lower in October following a weather-driven increase in September. This implies that sales at gasoline stations may have fallen in October. Altogether, our ex-auto retail sales forecast is an increase of 0.3% (Consensus: 0.2%). We expect a 0.2% increase in total retail sales (Consensus: 0.0%).”
NZD/USD: unable to get through the 10 4-hr SMA.
US dollar weak, but a rebound could see Kiwi down to 0.6820 initially.
Forex today: Wall Street’s momentum slows, risk sentiment subdued, DXY below 94 handle
NZD/USD has been capped at 0.6880 and in the vicinity of the descending 10 SMA on the 4-hour sticks, unable to benefit any further from the greenback’s slide below the 94 handle with a heavy yen cross. Currently, NZD/USD is trading at 0.6875, down -0.04% on the day, having posted a daily high at 0.6882 and low at 0.6873. The overnight low was located at 0.6844.
WTI plunges below $55 amid massive buildup in US crude oil stock
NZD/USD biased lower on Central Bank divergence
NZD/USD has been recovering on the 0.68 handle after the late July high at 0.7557 and Sep high of 0.7341 and the latest slide in Oct from 0.72 the figure. The divergence between the RBNZ (slightly more hawkish on its 2019 outlook) and the Fed keep the pair anchored on recovery attempts in the 0.69 handle, most recently capped by the 21-D SMA at 0.6943. Fed fund futures yields continued to price the chance of a Fed December rate hike at almost 100%.
NZD/USD 1 day:
“Daily momentum has swung back to negative, technically targeting the Oct low of 0.6820 which probably requires either a sharp rebound in the USD or further deterioration in risk sentiment,” argued analysts at Westpac.
NZD/USD 1-3 month:
“If the RBNZ remains firmly on hold, as we expect, and the US dollar rises on a delivery of a Fed interest rate rise in December, then NZD/USD should fall to 0.67 by year end”, the analysts added.
NZD/USD broke the 0.69 handle this week and dropped further below the 100 SMA on the 4-hour sticks. A follow-through exposes the 26th Oct low of 0.6818. To the upside, 0.6980 guards 0.7055, 9th Oct low.
Analysts at Nomura noted the day’s data from the US and offered their review / GDP tracking update while we await the US CPI and retail sales up next.
“NFIB small business survey: According to the NFIB, small business optimism increased marginally in October, up 0.8pp to 103.8. Those reporting that now is a good time to expand and those expecting higher real sales in six months both increased 6pp, indicating a healthy outlook over the near to medium term. Moreover, the net percentage of small businesses planning to raise worker compensation over the next three months increased 3pp to 21%, the highest level since December 2015. However, the percentage planning capital expenditures over the next 3-6 months remained unchanged at 27%, 5pp below the recent peak of 32%. Overall, small businesses remain upbeat about the economic outlook.
PPI: PPI increased by 0.4% m-o-m in October, exceeding the market expectation of +0.1%. Although energy prices were flat, food prices rose strongly by 0.5% m-o-m and trade prices which represent margins of retailers and wholesalers jumped by 1.1% m-om. However, stripping out those volatile components, core PPI which excludes food, energy and trade prices continued to increase only moderately by 0.2% m-o-m, suggesting that the underlying pace of inflation hasn’t changed. As for implications to CPI, finished consumer food prices, a proxy of food-at-home prices, rose steadily by 0.6% m-o-m, broadly in line with our expectation. On the other hand, a 0.2% increase in residential electricity prices came in slightly below our forecast. While the details of PPI suggest only a small downside risk, we are comfortable with our current forecast for the October CPI.
GDP tracking update: Relevant inventory deflators from today’s PPI data were stronger than our expectations, implying less real inventory investment in Q4. Thus, we lowered our Q4 GDP tracking estimate 0.2pp to 2.3% q-o-q saar.”