> US October Core Retail Sales & H/line Retail Sales : 1.7% & 1.7% v. 1.0% & 1.3% exp.
> US October Industrial Production : 1.6% v. 0.9% exp.
Overnight Headlines (BBG)
> The Biden/Xi summit lasted over three hours and seemed to be a constructive and respectful discussion, although nothing concrete eventuated from the meeting
> US Fed member James Bullard had some of the most hawkish comments to date, as he believes that the Fed should increase their taper pace to offset the rises in inflation
What you need to know
A very busy session across financial markets sees the USD open up this morning at the highest level since July 2020 on the DXY, as positive US data and hawkish Fed commentary ignited a surge in the reserve currency. Focusing on-shore, the RBA seems intent to hold the line on their current policy path, and despite noting that inflation risks have skewed to the upside the Central Bank is prepared to remain patient and keep rates on hold until 2024 (for now). The AUDUSD was muted on the release of the minutes and the accompanying speech by Gov. Lowe later in the session, with traders seemingly more focused on the headline risks to come from the US-China summit throughout the day. That meeting lasted much longer than forecast, with some interesting, yet positive, headlines arising from the discussion it seems as though the relationship between the two countries may be shifting positive, ever so slightly.
Biggest moves were seen in China, with USDCNH breaking to the lowest levels since June of this year, although paring gains later in the session as the dollar roared back in a major way. With inflation top of mind, it seems as though some Fed members have started to see the light and are prepared to be more hawkish in their views. James Bullard was explicit in his comments, that the FOMC should act aggressively in the upcoming meetings in order to avoid the potential runaway inflation feared by economic forecasters. Aiding in the surge in the USD was very positive data coming from the US retail sector in October, exceeding estimates to the upside and adding fuel to both the economic recovery and inflation narrative.
The USD is up against nearly all the G10 majors except the GBP, with EURUSD looking very weak and only a tick above the 1.1300 level as we open in Sydney this morning. AUDUSD and NZDUSD took dives, after both pairs looked poised to recover the quick turnaround has both hovering around key support at 0.7300 and 0.7000 respectively. US equity markets liked the release of the retail numbers, with the S&P500 up 0.7% at the time of writing and setting the stage for a positive ASX open today. Commodity moves focused around energy supply, with natural gas jumping and coal dropping 3.7%, WTI crude opens the day flat. Inflation hedges had poor days, with Gold down 0.8% as rational Fed commentary hurt the price, while Bitcoin took a nosedive as China eluded to plans to hit miners hard in the aftermath of the Biden/Xi summit.
The Day Ahead
> NZ Q3 PPI Input & Output : 1.7% & 1.4% exp.
> AU October MI Leading Index : 0.0% prev.
> AU Q3 Wage Price Index : 0.6% exp.
> EU ECB President Lagarde to speak
> UK October H/line CPI & Core CPI : 3.9% & 3.1% exp.
> CA October CPI : 0.7% exp.
> US FOMC Members Williams, Bowman, Daly, and Waller to speak
The focus today will be on the AU Q3 wage numbers, due at 11:30am AEDT, with inflation on the mind this number will be important for RBA forecasting. Commentary from ECB President Lagarde will also be watched, hitting the wires during the Asian session. Headlines on US-Sino relations will be important, while markets continue to digest an interesting session of data/rhetoric. The AUDUSD looks heavy leading into the open, with the recent low of 0.7277 the target.
Range Today : 0.7270 – 0.7340
The inability for the pair to break through the congested 0.7360s is not a good sign in the near term, with the technical selling in some of the other major pairs putting even further downside pressure on the AUDUSD. Targeting a break of 0.7300 in early trading, with 0.7290 the last defence on a move back toward the recent lows. Today’s WPI is important, so there is a chance of a reversal but with the DXY close to breaking out pressure is mounting.
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