US Dollar Continues to Edge Lower

Daily Analysis - 15/10/2015

Commerce Department Retail Sales Figure Underline Weak Consumer Spending in September

The US Dollar continues to weaken as the monthly retail sales numbers disappointed on both the headline and the core figures. The focus shifts to the US monthly inflation data due today with expectations remaining dovish.

Australian Unemployment Unchanged

The Australian jobs report released earlier today saw the unemployment rate stay put at 6.20%, matching the median consensus estimates. The unemployment change saw the number of jobs declining by over 5000, marking the first decline in jobs growth since April of this year. A major chunk of the declines came from full time workers who in total lost 13,900 jobs in the month of September. Pervasive weakness in the commodity sector which has led to a wave of consolidations and layoffs remains a key concern for policymakers as they seek to keep unemployment low and growth sustained. The AUSDUSD currency pair posted a session high of 0.7350 on the news before pulling back lower. Resistance is identified at 0.7348 and a decline back towards 0.7190 is possible, which marks the breakout from the longer-term falling trend-line.

UK Jobs Grow at a Steady Pace

The British Pound found support in the UK jobs report which saw the unemployment rate decline to 5.40% against median estimates expecting to see the jobless rate remain steady at 5.50%. The average earnings index also increased at a pace of 3.00%, printing modestly below the 3.10% consensus estimate. The British Pound initially fell on the news only to digest the numbers before staging a strong rally. The GBPUSD currency pair closed yesterday’s sessions with gains of 1.50% to post a new two-week high at 1.5493. While inflation proved to be a drag, the market expects to see the annualized UK inflation to remain subdued into end of this year ahead of a projected rebound in the first quarter of 2016. The market expectations are also shifting in favor of a BoE rate hike around the second quarter of 2016.

Weak US Retail Weighs on Federal Reserve

Retail sales numbers in the US declined more than expected as consumers preferred to hold on to the savings from low fuel prices. The cooling off in consumer spending raises questions on weakening demand domestically on the backdrop of weak global trade. The retail sales numbers is also likely to put the third quarter GDP figure on weaker footing compared to the spectacular 3.90% GDP growth print seen in the second quarter. The US producer price index also decreased -0.50%, posting one of the steepest declines since January of this year. Weak PPI is likely to keep inflation subdued in the coming months. The Greenback declined strongly on the news as most of its peers and risk assets continued to rally. The most noticeable gains came from the NZD which surged nearly 2.19%, closing at a 14-week high.

Focus Shifts to US Inflation Data

After a weak jobs report and soft retail sales numbers, the markets will be looking towards the monthly inflation figures. Although not taken into account by the Federal Reserve, the CPI data will regardless be watched closely by the markets. Expectations are for the US CPI to have declined -0.20% on the headline month over month and a near flat reading of 0.10% for the core CPI over the same period. Today will also be a busy day for the US Dollar as the weekly unemployment claims are due followed by the Philly Fed Manufacturing Index. The USDJPY currency pair broke out from its consolidation but doubts still remain if the breakout is valid. Prices touched a low of 118.624 yesterday before pulling back off these lows in today’s early trading session. With the host of US economic data due later this session, USDJPY is likely to remain volatile.