The dollar regains some stability on the back of soft Australian inflation figures, which dragged the Aussie to 2-week lows. USD's gains versus the euro will be largely influenced by the array of key US data, with the bias remains in favor of a Fed cut in late Q3.
The 9 am EST release of the February S&P/Case Shiller Home Price Index will be in focus. The Composite 10 index fell in each of the last 4 months, reaching 220.9 in January. Existing home sales are due at 10 am EST, expected to have dropped 4.3% to 6.4 mln, following favorable weather conditions propping the February and January figures by 3.9% and 2.7% respectively.
Also at 10 am EST is the widely watched Consumer Board's consumer confidence index for April, expected at 105 from 107.2. An increasingly important component of the index will be the job market confidence. The difference between those finding jobs "plentiful" and "hard to get" has continued to improve, reaching a 6-yeart thigh of 10.
Aussie pushed down under by soft CPI, slashed rate hike odds
The Aussie tumbled across the board on weaker than expected CPI figures, which slashed expectation of an Aussie rate hike next week to 8% from 40%. Q1 CPI slowed to 0.1%, undershooting forecasts of a 0.6% increase, following a a 0.1% decline in QQ4. The y/y rate plunged to 2.4% versus expectations of 3.0% following 3.3% in Q4. The more important reading of y/y core CPI came in at 2.7% below 2.8% forecasts and 2.95% in Q4, falling further within the Reserve Bank of Australia's preferred target band of 2-3%. Expectations of a rate hike were already slashed to 40% from 60% after yesterday's softer than expected PPI figures. We told clients in yesterday's note (Pre-Aussie CPI FX Charts Strategy) that a weak CPI "could well drag the pair towards the 83.00 figure and onto the preliminary support of 82.80. A breach below 82.60 is seen calling 82.20." After the 9.30 pm release, Aussie fell from 83.25 to 82.80, before extending declines to 82.36.
We also told clients that "we see further downside in AUDCAD towards 92.70 and 92.25". The cross par fell from 93.30 to 92.41. We may see further declines in the event that the Bank of Canada issues a hawkish statement at today's 9 am rate announcement. The decision is widely expected to maintain rates unchanged at 4.25%.
Aussie's only chances of recovering ground may emerge on the back of US data weakness. Aussie stabilizes its latest losses, edging up to 82.70 from 82.30. US data weakness is seen propping the pair to 83.00, until facing resistance at 83.25. Support stands at 82.20 and 82 cents.
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