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    IronFX Daily Commentary | 12/10/2015

    12.10.2015, 10am

    USD defies Fed officials bullish comments The dollar remained under heavy selling pressure even after Fed Vice Chairman Stanley Fischer, became the latest policy maker to support the case for a year-end hike, joining William Dudley, Dennis Lockhart and John Williams. In IMF’s annual meeting in Peru, he said that while the previous two payroll reports have been “disappointing,” the job market’s prospects for further improvement “look good overall”. In line with the other FOMC members, he downplayed the significance of the weak September NFP report and emphasized on the overall labor market improvement. The dollar index, which measures the greenback's value against a basket of six major currencies, touched a low of 94.69 on Friday, its weakest level since September 18.

    • The aspect of a US rate hike gained more supporters during the IMF’s annual meeting in Peru. Many central bank officials said that they prefer certainty over agony of waiting, and compared to a year ago, several EM Governors were keener that the Fed just go with it. In such case, the uncertainty over the impact on the markets from a forthcoming rate increase will be reduced, as simply delaying the increase will not solve the situation. Therefore, I would treat the current weakness in USD against its major peers as a corrective phase.

    • Today’s highlights: The economic calendar is very light today and trading activity is likely to be thinner than usual. It is the Thanksgiving Day in Canada, the Health and Sports Day in Japan and the Columbus Day in the US. The US equity market will be open, but Banks and the Bond Market will be closed.

    • There are three speakers on the agenda. The focus will be on the Atlanta Fed President Dennis Lockhart and Chicago Fed President Charles Evans, on any signs if they also support the notion that it would be appropriate to hike this year. Bank of Canada Governor Stephen Poloz also speaks.

    • As for the rest of the week, on Tuesday, China’s trade surplus for September is forecast to have declined. Both exports and imports are expected to fall at a faster pace than in August. One of the reasons PBOC devaluated the yuan was to boost the nation’s exports. This doesn’t seem to have the desirable effect though. Also the decline in imports could hit AUD and NZD since Australia and New Zealand are heavily dependent on exports to China.

    • The German ZEW survey for October is also coming out. The survey for September showed a mixed picture for Eurozone’s strongest economy. The expectations index declined once again from the previous month, while the current situation index increased moderately. This time, both indices are forecast to decline a bit, which could prove negative for EUR.

    • We also get inflation data from the UK. The headline CPI is expected to have remained flat in September, while the core rate is expected to have risen a bit. Given that last Thursday, BoE officials were concerned that inflation is likely to rise slower than previously expected, a disappointing figure is likely to push further back expectations of a rate hike by the BoE, and put GBP under renewed selling pressure.

    • On Wednesday, China’s CPI and PPI data for September are coming out. The forecast is for the CPI rate to decline to +1.8% yoy from 2.0% yoy, while the PPI rate is expected to remain unchanged. The slowdown in the CPI is likely to add to concerns over China’s economic slowdown and alongside a disappointing trade balance could hurt further AUD and NZD.

    • In the UK, the unemployment rate for August is forecast to have remained unchanged at 5.5%, while average weekly earnings are expected to have accelerated to 3.1% yoy from 2.9% yoy. Further improvement in the UK job market is likely to support the pound, which could erase some of its Tuesday’s losses if the CPI data disappoint.

    • In the US, both the headline and core (excluding autos and gasoline) retail sales for September are expected to have risen at the same pace as in August. The US PPI is also coming out.

    • On Thursday, Australia’s employment report for September is coming out. The unemployment rate is forecast to have risen to 6.3% from 6.2%, while the net change in employment is expected to show an increase of 5k, much less than in August. This could prove AUD-negative somewhat.

    • In the US, the headline and core CPI rates for September are coming out. The headline CPI is expected to have turned negative, while the core CPI is expected to have remained unchanged. Having in mind that on Thursday, the Fed minutes showed officials worried on low inflation, a dip into deflation will confirm their concerns and increase the possibilities that the committee will not raise rates this year.

    • Finally on Friday, New Zealand’s CPI for Q3 is forecast to have slowed to +0.2% qoq from 0.4% qoq in Q2. This will bring the annual rate down to +0.3% yoy from +0.4% yoy. The inflation rate remains well below the 1%-3% target of the RBNZ and consequently, this increases the probabilities for the Bank to cut rates at its next meeting at the end of the month.

    • In the US, industrial production is forecast to have risen a bit in September after falling in the previous month. The preliminary U of M consumer sentiment index for October is also coming out along with the surveys of 1-year and 5-to-10 year inflation expectations.

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