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Aussie hammered on poor CPI, FOMC Statement – Key

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Oct 28, 2015.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

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    FXStreet (Mumbai) - Nervousness hit Asia as markets now turn their attention towards the Fed decision due to be announced later today. As a result, safe-havens were in demand, with yen and gold better bid. While the Aussie was smashed on poor inflation report and the NZD followed suit ahead of RBNZ meeting.

    Key headlines in Asia

    Japan Retail Trade (YoY) came in at -0.2% below forecasts (0.4%) in September

    Australia Q3 inflation below RBA's comfort zone

    Chances of RBA rate cut in Nov at 66%

    Dominating themes in Asia - centered on JPY, AUD, NZD

    Risk-off sentiment was the underlying theme in Asia, with Asian traders on the back foot ahead of key Fed decision. Markets preferred to park their funds in safe-haven, thus the yen and gold saw renewed buying interest in the Asian trades. The yen remained better bid versus the US dollar, despite poor Japan’s retail sales data which spurred BOJ easing expectations at this Friday’s policy meet. The major steadied around the 10-DMA located at 120.40. While gold trades 0.16% higher near $ 1168 and now eyes hourly 200-SMA ahead of Fed outcome.

    Moving onto higher yielding currencies, the Antipodes were heavily offered in Asia, with AUD/USD emerging the biggest loser, plunging over -1% to 0.7110. The Aussie was smashed after the Australia’s price pressures softened in the Sept quarter, stoking RBA Nov rate cut bets. Australia’s trimmed mean CPI q/q came in at 0.3% versus 0.5% expectations and 0.6% previous. While the CPI q/q dropped to 0.5% versus 0.7% expectations. NZD/USD also slumped in tow, as markets believe that the recent poor trade data and drop in dairy prices could lead RBNZ to cut rates at its policy meeting due tomorrow. The Kiwi sinks 0.60% to 0.6720.

    On the equities space, the Asian stocks took the negative lead from the Wall Street and fell into losses as risk-off trades persist. Australia’s S&P ASX index trades -0.17% lower at 5,337. While the Shanghai Composite index drops -0.60% to 3,413. Hong Kong’s Hang Seng loses -0.60% to 23,007. The Nikkei, although, bucked the trend and edged 0.61% to 18,891.

    Heading into Europe & the US

    Yet another data-light European session ahead, with the second tier economic news expected to dominate amid light trading. German import prices and Gfk consumer climate will be reported to fill in an otherwise quiet EUR calendar.

    Looking towards the New York session, FOMC Statement is likely to hog the limelight while RBNZ rate statement will be also closely eyed.

    On the date front, nothing of great relevance is lined up for release, except for the goods trade balance and EIA crude stockpiles report.

    The upcoming FOMC Statement is expected to turn out to be a non-event, as the Fed will pass a rate hike today and could turn out dovish in wake of recent run of poor US fundamentals and renewed strength in the US dollar. While external headwinds continue to weigh on the US economic prospects. However, any change in the wordings of the policy statement which may hint towards a Dec hike, would be closely examined by markets.

    Analysts at BAML note,” The FOMC may mark down their assessment of growth from moderate to modest, and may note that the pace of improvement in the labor market has slowed."

    Analysts at TD Securities believe, "Without updated economic projections and an accompanying press conference, the bar for action at the October FOMC meeting is much higher than in September, and what will be the case in December. Only if the economic data had improved materially versus the Fed's updated expectation outlined in September would a hike [this] week be warranted. Instead, the exact opposite scenario unfolded."

    EUR/USD Technicals

    Valeria Bednarik, Chief Analyst at FXStreet explained, “The technical stance is bearish, albeit the US Federal Reserve will have its monthly economic meeting late Wednesday and the market will probably trade on sentiment rather than technical. Anyway, and for the upcoming hours, the 1 hour chart shows that the price is below its 20 SMA, whilst the technical indicators show no actual strength, but hold in negative territory.”

    “In the 4 hours chart, the Momentum indicator extended its advance and is currently around its 100 level, but the price was unable to hold gains above a strongly bearish 20 SMA whilst the RSI indicator turned back south after correcting extreme oversold readings, all of which supports further declines on a break below the 1.1000 figure.”
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