The early portion of North American trade has been intriguing to say the least as US inflation figures were both simultaneously encouraging and depressing. The Consumer Price Index beat consensus and increased from last month, but both previous and consensus were in deflation mode at -0.1%, so the 0.0% reading from this morning wasn’t something to resoundingly celebrate. On the other hand, the Core CPI (excluding food and energy) was at 1.7%, which improved from the 1.6% previous and beat the consensus of 1.6% as well. The argument that low inflation is largely transitory, as Federal Reserve Chairwoman Janet Yellen mentioned last week, seems to be the case as low oil prices appear to be the biggest contributor to low overall inflation. That wasn’t the end of confusion though as US New Home Sales rose to 539k (466k consensus) and logged its best result since early 2008. In response, the USD is slightly higher, equities are slightly lower, and commodities are falling slowly as well.
The interpretation of the Fed’s intentions is really at the heart of what the market is doing lately. Since many market participants felt the committee was being dovish by lowering expectations in both growth and propensity to increase interest rates, the feeling of “more of the same” eased fears of uncertainty and helped to propel equities and commodities higher. However, Yellen and company left themselves with an out by stipulating that an interest rate increase could come at any time, though likely not at the next meeting, and that their decision would be data dependent. An inflation rate that is increasing AND showing signs that its only low because of the oil situation could potentially be the data they seek to get more aggressive. As investors try to anticipate the Fed’s thoughts from here, markets are likely to be volatile and difficult to manage as opinion flip-flopping becomes the norm.
Since US based markets may become more challenging, sometimes it is wise to look elsewhere for opportunities. One of those opportunities is arising (literally) in the AUD/NZD currently. The advancement of the AUD has been the subject of at least one article on this site recently, but the NZD appears to be falling behind in that advancement to their larger neighbor to the west (at least over the last 24 hours). That could all change with the NZ Trade Balance being released this afternoon which is expected to increase to a 375M surplus. If achieved, it would be the second straight month of surplus and help cement the fact that the milk trade has gone in New Zealand’s favor for the last few months.
On the technical front, the AUD/NZD appears to be advancing up to a long term downtrend that may help put a cap on this advance. Perhaps helping to stifle this rally is a Fibonacci based Bearish Gartley pattern that coincidentally finishes at that same level as the trend line near 1.0350. If the fundamental and technical factors were to align, this pair may be setting up to once again challenge all-time lows near 1.02 within the next 24-48 hours.
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