The Australian dollar is storming higher

Photo by NASA via Getty Images

The Australian dollar soared on Wednesday, propelled higher by a soft US inflation report for October.

Here’s the scoreboard as at 8.05am AEDT.

AUD/USD 0.7633 , 0.0076 , 1.01%
AUD/JPY 85.86 , 0.07 , 0.08%
AUD/CNH 5.0476 , 0.0398 , 0.79%
AUD/EUR 0.6454 , 0.0019 , 0.30%
AUD/GBP 0.5688 , 0.0014 , 0.25%
AUD/NZD 1.0865 , -0.003 , -0.28%
AUD/CAD 0.9779 , 0.0056 , 0.58%

After opening the session buying .7557, the AUD/USD exploded higher following the release of a weak US inflation report for October, sending it back above the 76 cent level for the first time since December 5.

While headline consumer price inflation (CPI) came in line with expectations, lifting 0.4% during the month leaving it up 2.2% from a year earlier, core CPI — that which excludes food and energy prices — rose by 0.1% in November, just half the level expected.

That saw the year-on-year rate slide from 1.8% to 1.7%, again missing forecasts for an unchanged reading.

The AUD/USD also found support following the release of the US Federal Reserve’s December FOMC interest rate decision.

As expected, the FOMC lifted its Fed funds rate by 25 basis points to a range of 1.25% to 1.5%.

Changes to its GDP, unemployment and inflation forecasts, along with the expected pathway for interest rates next year, were also largely as expected.

The Fed now sees economic growth a little faster next year, and unemployment a little lower, based on its new median forecasts. Importantly, it still sees annual growth in core PCE inflation — its favoured measure of price pressures — accelerating to 1.9% next year.

It also expects to deliver three 25 basis point rate hikes in 2018, and a further two in 2019, which was unchanged from the expectation communicated in September.

Janet Yellen’s final press conference as Fed chair, along with the accompanying monetary policy statement, contained little market moving content.

“USD fell across the board and US-10 year Treasury yields dipped to a low near 2.36% in part because there was no material changes to the FOMC’s median Fed funds rate projections and inflation outlook,” said Elias Haddad, senior currency strategist at the Commonwealth Bank.

He added that “the higher number of Federal Reserve officials in favour of keeping rates steady also weighed on USD and US Treasury yields”, referring to Charles Evans and Neel Kashkari’s decision to vote against lifting interest rates.

As a result of the US CPI miss and uneventful FOMC meeting, the AUD/USD is currently sitting at .7633, having hit a high of .7639 earlier in the session.

AUD/USD Hourly Chart

Turning to the day ahead, the big events keep coming with major economic data and central bank decisions scheduled around the world.

In Australia, the ABS will release its November jobs report at 11.30am AEDT.

Not only will markets receive monthly employment and unemployment figures, but also quarterly readings on underemployment and underutilitsation — two figures that everyone is watching closely given the implications for wage growth.

This 10-second guide has more on what to expect.

Outside of Australia, the other major release in Asia will be Chinese industrial output, urban fixed asset investment and retail sales figures for November.

Industrial output is expected to lift 6% in November from a year earlier, a small deceleration on the 6.2% pace reported in October.

Urban fixed asset investment is tipped to have risen 7.2% in the first 11 months of the year compared to the same period in 2016, slightly weaker that the 7.3% annual pace reported between January to October.

Finally, retail sales are seen lifting 10.2% year-on-year, up from 10% in October.

“With the better-than-expected trade and lending data for November, the market would not be surprised if today’s China growth numbers print somewhat higher than expected,” says David de Garis, Economist at the National Australia Bank.

Later in the session, markets will also have to navigate monetary policy decisions from the European Central Bank (ECB), Bank of England (BoE) and Swiss National Bank (SNB).

While no change in policy is expected, these events can and do have a tendency to surprise on occasions.

On the data front, highlights include UK and US retail sales along with flash manufacturing and services PMI reports from Europe.

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