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  • AUD/USD is picking up the bid once again en route towards the triple intrada top at 0.7225/29 vs a backdrop of a weaker dollar environment.  
  • A number of things are going for the Aussie bulls and the tables are turning.  

AUD/USD is currently trading at 0.7195 from a high of 0.7229 and a low of 0.7167. A number of things are going for the bulls with the CBRT delivering a contentious rate hike, offering some broader support to EM. Alongside some of the recent developments in the US/China trade disputes, the backdrop was leaning negative for the USD into CPI which disappointed and also sent the greenback lower:

  • All items CPI rose 0.2% on month-over-month basis in August with the year-over-year rate dipping to 2.7% from 2.9% in July.
  • Energy prices rose 1.9% from July. The year-over-year rate slowed to 10.2% from 12.1% in July, though.
  • Year-over-year food price growth held steady at 1.4%.
  • Core (ex-food & energy) prices inched up 0.1% on a month-over-month basis. The year-over-year rate fell to 2.2% from 2.4% in July.

Nathan Janzen, Senior Economist at RBC Economic Research explained that the moderation in the headline year-over-year rate to 2.7% from 2.9% was partly due to an expected slowing in annual energy price growth.  However, he noted also that Ex-food & energy price growth was a larger surprise with just a 0.1% increase on a month-over-month basis sending the year-over-year rate down to 2.2% from 2.4% in July – “That’s still above the Fed’s 2% inflation objective, though, and the moderation probably reflected more ‘noise’ than underlying trend anyway.”

Additional key takeaways from the CPI data:

“Apparel prices posted their largest one-month decline since 1949 in August (-1.6%) and medical costs dipped again.  Neither of those declines seem likely to last “” particularly for apparel prices if the Trump administration follows through on threats to levy further tariffs on imports from China.”

“Looking through monthly wiggles, underlying price growth is still more likely trending upward than downwards. The combination of already tight labour markets and tailwinds from deficit-financed government tax cuts that continue to spur economic growth have been pushing wages gradually higher.”

“Inflation around 2% alongside strong labour market and GDP data should only reinforce expectations that policymakers will continue to gradually hike rates.”

Domestically, things are looking a little brighter on the economic front.  Recalling, GDP data that was released last week was showing that Aussie growth had jumped to a 6yr high in Q2. Then, yesterday, the jobs report for Aug easily beat market forecasts, with all metrics coming in better than forecast.  Analysts at TD Securities explained that the headline arrived at +44k, vs mkt at +18k, and that solid gains were posted in full time (+33.7k) and part time jobs (+10.3k) – that the unemployment remained at 5.3%, near 6yr lows and that was despite the rise in the participation rate from 65.6% to 65.7%.  

“Today’s data also included quarterly releases on underemployment and underutilisation. Underemployment fell -0.3% to 8.1% and the underutilisation rate ( underemployment + unemployment rate) fell -0.4% to a 5yr low of 13.4%. Today’s outcome should please the RBA and convince it that slack in the economy is gradually being absorbed,” –

the analysts added.  

AUD/USD levels

Meanwhile, AUD/USD has started to correct higher and analysts at Commerzbank said that they would allow for recovery to the 55-day ma at 0.7333: “We note that the market has eroded the May and December 2016 lows at 0.7161/46. It has maintained downside pressure however due to the 13 count, we will not chase this lower, but wait for a rebound to sell into. The move below 0.7140 opens up the path to 0.6827 the 2016 low. A negative bias will remain entrenched while below the 55-day ma at 0.7333.”

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