Aussie Regains Ground after CPI, Dollar Treads Water

Australian Dollar regains some ground in Asian session today, following stronger than expected monthly CPI data. In the background, market sentiment also stabilizes after Fed Chair Jerome Powell refrained from commenting on monetary policy or inflation. New Zealand Dollar is currently the second strongest, followed by Swiss Franc. Yen is the worse performer, followed by Canadian and then Dollar and Euro. Sterling is mixed for now.

Technically, Dollar’s selloff has clearly lost momentum this week so far, but there is no sign of a sustainable rebound yet. Traders are probably just holding their bets ahead of tomorrow’s US CPI release. Gold’s rally is still on track to 100% projection of 1616.51 to 1786.63 from 1728.48 at 1898.80. Considering weak upside momentum in 4 hour MACD, 1900 handle could cap upside in first attempt, and bring pull back. That might give Dollar a chance to rebound elsewhere.

In Asia, at the time of writing, Nikkei is up 0.98%. Hong Kong HSI is up 1.02%. China Shanghai SSE is up 0.20%. Singapore Strait Times is up 0.29%. Japan 10-year JGB yield is down -0.0074 at 0.504. Overnight, DOW rose 0.56%. S&P 500 rose 0.70%. NASDAQ rose 1.01%. 10-year yield rose 0.104 to 3.621.

Fed Bowman: Rates to remain at sufficiently restrictive level for some time

Fed Governor Michelle Bowman said in a speech, “In recent months, we’ve seen a decline in some measures of inflation but we have a lot more work to do, so I expect the FOMC will continue raising interest rates to tighten monetary policy, as we stated after our December meeting.”

“My views on the appropriate size of future rate increases and on the ultimate level of the federal funds rate will continue to be guided by the incoming data and its implications for the outlook for inflation and economic activity.”

“I will be looking for compelling signs that inflation has peaked and for more consistent indications that inflation is on a downward path, in determining both the appropriate size of future rate increases and the level at which the federal funds rate is sufficiently restrictive.”

“I expect that once we achieve a sufficiently restrictive federal funds rate, it will need to remain at that level for some time in order to restore price stability, which will in turn help to create conditions that support a sustainably strong labor market.”

ECB Centeno: Inflation will fall again from March onwards

ECB Governing Council member Mario Centeno said yesterday, “we are approaching the end of the current process of interest rate hikes, I believe that is true.”

Centeno said that “wage updates in Europe could make it difficult for prices to continue to fall” in the next two months, but “after that, inflation will fall again from March onwards.”

BoJ Public Survey: 32.5% expects prices to go up significantly, up from 28.9%

According to BoJ’s December Survey on the General Public’s Views and Behavior, 32.5% of respondents expect prices will go up significantly one year from now, up from September’s survey of 28.9%. Those expecting prices to go up slightly dropped to 52.5%, down from 56.8%. Together, those expecting prices to go up dropped to 85.0%, down slightly from 85.7%. Only 2.4% expects prices to go down.

Regarding economic condition one year from now, those expecting improvement dropped to 9.1%, down from 10.5%. Those expecting unchanged dropped to 44.4%, down from 46.0%. Those expect worsening conditions rose to 46.2%, up from 42.9%. DI dropped to -37.1, down from -32.4.

Australia monthly CPI rose back to 7.3% yoy in Nov, ongoing inflationary pressures

Australia monthly CPI accelerated from 6.9% yoy to 7.3% yoy in November, above expectation of 7.2% yoy.

Michelle Marquardt, ABS Head of Prices Statistics, said “This month’s annual movement of 7.3% compares to 6.9% in October and 7.3% in September, indicating ongoing inflationary pressures.”

The most significant contributors to the annual rise in November were Housing (+9.6%), Food and non-alcoholic beverages (+9.4 per cent), Transport (+9.0%), Furniture, household equipment and services (+8.4%) and Recreation and culture (+5.8%).

Australia retail sales rose 1.4% mom in Nov on Black Friday sales

Australia retail sales rose 1.4% mom in November, well above expectation of 0.7% mom. The seasonally adjusted turnover of AUD 35.92B was a new record high.

Ben Dorber, ABS head of retail statistics, said, “While we typically see a rise in spending around Black Friday sales, the strong seasonally adjusted rise in November 2022 shows that the effect is increasing over time, as the event has become more common across retailers and sales periods become longer.”

“Given the increasing popularity of Black Friday sales, the smaller increase in October may reflect consumers waiting to take advantage of discounting in November, particularly in light of cost-of-living pressures.”

Looking ahead

Italy retail sales and US crude oil inventories are the only features in another ultra-light day.

AUD/USD Daily Report

Daily Pivots: (S1) 0.6859; (P) 0.6894; (R1) 0.6927; More…

Intraday bias in AUD/USD remains neutral as consolidation from 0.6949 temporary top is extending. Outlook will stay bullish as long as 0.6721 support holds. Break of 0.6949 will resume larger rise from 0.6169 to 61.8% projection of 0.6169 to 0.6892 from 0.6721 at 0.7444 next. However, firm break of 0.6721 will indicate near term reversal and turn bias back to the downside.

In the bigger picture, corrective decline from 0.8006 (2021 high) should have completed with three waves down to 0.6169 (2022 low). Further rally should be seen to 61.8% retracement of 0.8006 to 0.6169 at 0.6871. Sustained break there will pave the way to retest 0.8006. This will now remain the favored case as long as 0.6721 support holds.

Economic Indicators Update