Originally published by AxiTrader
Quick Recap
After two big, ugly down sessions to end the week the AUD/USD is back below 76 cents and waiting on the release of Q3 CPI this Wednesday. This is a huge release for local markets as it will inform expectations about what the RBA will, or perhaps won’t, do about interest rates in Australia.
But while the reversal off 77 cents again reinforced the broad 0.7450/0.7750 range the AUDUSD has been in for some time the Aussie is lagging commodities a little at present. A strong CPI Wednesday may offer another opportunity for the Aussie bulls to test overhead resistance again.
What You Need To Know
After a tumultuous week which saw the Aussie top out in the 7730's the close on the week of 0.7602 was actually just a few points below the open. On a week when the US dollar was substantially stronger that's not a terrible performance and arguably it was only the rubbery jobs data last Thursday that was the catalyst for the collapse.
That appears doubly the case when you consider the past few months correlation between movements in the Aussie dollar, crude oil, and commodities - here represented by the Thomson Reuters CRB index (please note this chart is as at early Saturday morning NSW time).
Even with the stronger US dollar commodities have held reasonably firm.
That's something that can encourage the Aussie dollar bulls - assuming there are some left after the Aussie reversed back off 77 cents for the 8th time in the past few months last week.
What the commodity strength in the face of US strength suggests is that the move in the US dollar is very specific to the direct relationships with the assets, or currency againist which the US dollar is being priced.
The collapse in the Aussie post jobs, the fall in the Euro after the ECB meeting and Draghi's press conference, and the heavy selling in the Canadian dollar after the BoC's less optimistic outlook together with the release of weaker than forecast CPI and retail sales data all suggest traders and investors global are being very specific in their buying and selling.
This is not just blanket buying of the US dollar.
That means the CPI on Wednesday in Australia is vitally important for the outlook for the AUDUSD because it will inform expectations about what the RBA will do in coming monoths with Australian interest rates.
If prices in Australia have gone the same way as prices in most of the rest of the world recently then the lift in fuel is likely to give the CPI a boost meaning the market expectation of a headline 0.4% is likely close to the market, or could perhaps be a little light. Such an outcome would rule out a cut anytime soon. But a low number, say below 0.3%, would likely open the door to heightened expectations of a cut next week on Cup Day.
Have a great day's trading