Dollar Fails to Impress on CPI Surprise

Daily Analysis - 16/10/2015

US Consumer Prices Showed an Unexpected Pickup With Core Figure Rising to 1.90% Annualized

Consumer prices in the US were mixed on the monthly reading with the headline CPI falling -0.20% while the core CPI increased 0.20% over the same period. On an annualized basis, the Core CPI ticked higher to 1.90% but the US Dollar was unimpressed by the data, giving back gains towards the end of the session.

New Zealand Quarterly CPI Rises

The quarterly consumer inflation data from New Zealand released earlier today showed an increase of 0.30% for the last quarter. The data beat analyst consensus estimates which expected the consumer prices index to rise 0.20% over the quarter. On an annualized basis, inflation was up to 0.40% by the end of the third quarter, highlighting the relative successese of monetary policy in stemming the slide in inflation. While the Kiwi dollar initially managed to post some gains, the currency declined as investors start to focus on another prospective cut to the benchmark interest rate from the Reserve Bank of New Zealand largely on account of the exchange rate's appreciation in recent weeks. Analysts expect to see at least one more rate cut from the RBNZ by the end of this year just as the NZDUSD pair is trading near a 15-week high.

Eurozone CPI Weighs Heavy

The Euro looks to the annualized CPI reading today and one which could keep the pressure on the single currency. Earlier, ECB Governing Council member Nowotny commented that Eurozone inflation was starting to show signs of further deflation and at risk of missing the ECB's targeted 2.00% inflation rate. The Euro initially reacted to the news when it hit the wires but was mostly dented by the stronger than anticipated US inflation reading. Today's expectations are for the final headline CPI to have fallen -0.10% while core CPI is expected to stay unchanged at 0.90% on an annualized basis. There is growing speculation that the ECB could look towards expanding its asset purchases which has so far failed to boost inflation. The ECB will be meeting next Thursday which will undoubtedly stoke speculation. EURUSD closed yesterday’s session at 1.1388 after prices hit resistance at 1.1470.

Canadian Manufacturing Sales

The Canadian dollar is poised to post a third straight week of gains against the Greenback but is at risk on today's manufacturing sales numbers. Estimates point to a decline of -0.60% after sales in the manufacturing sector rose 1.70% last month. The Canadian dollar has been tracking prices in crude oil over the past few weeks, gaining on the back of the rebound in energy. The Loonie closed yesterday at 1.2862 but the 4-hour chart is showing signs of a possible rebound which could see USDCAD retrace some of its losses towards the broken support at 1.3050 to establish resistance. Crude oil prices declined after the weekly EIA inventory report showed a larger than expected build up in US commercial stockpiles, which rose 7.6 million barrels against estimates of 2.2 million barrels. WTI fell to lows of $45.45 before recovering to close the day higher at $46.85.

US Consumer Inflation Expectations

The University of Michigan consumer inflation expectations data and consumer sentiment are the two main events for the US Dollar today. The median estimates call for consumer sentiment to have increased to 89.0 from 87.2 previously while UoM inflation expectations currently stand at 2.80%. One of the main drivers of inflation continues to be rising housing costs with the American public shifting from an ownership economy to rental economy. With rents rising, the weakness in energy prices is more than offset by increasing rent costs. Aside from the earlier two events, US capacity utilization rates and industrial production numbers are also due later. The USDJPY pair was trading near the lows of 118.16 yesterday and currently looks to have broken out from its range. However, only a weekly close below 119.00 will confirm this view and open up towards further declines in USDJPY.