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US Open Note – Stocks push up and dollar index slips below 92.44  



Markets and the greenback’s reaction connected to US CPI data

Today’s pause on market volatility seems to have been hinged around market jitters prior to the release of the US CPI data, which is somewhat seen as the key that opens the taper door. The question is, has the rush to return to normality and subsequent supply bottlenecks been the main driver for inflation, suggesting it is temporary, or is there a deeper reason which the Fed is overlooking? These figures may provide the basis of rhetoric in the Fed’s next meeting, being the reason for today’s CPI figures’ significance. Rate hikes remain a thing for next year but clearly markets are counting on today’s CPI data being a driver for nudging expectations of tapering in the near future.

The scheduled August headline CPI results were in-line with expectations at 5.3% y/y, and the core number at 4.0% in relation to estimations of 4.2% y/y, which is still well above the Fed’s 2% target. The weaker results have hurt the dollar in the forex arena. It seems the numbers may not provide the assistance to bring the taper timeline nearer.

The core CPI index improved a tad to 279.34 while the monthly CPI rate for August eased to 0.3% from July’s monthly increase of 0.5%, weakening a bit below the forecast of 0.4%, and the core results were at 0.1% versus 0.3% expected for August.

The dollar index has slipped to around 92.30, while the euro’s bounce off $1.1800 has extended past $1.1840, and the pound has been driven just over the $1.3900 mark, a good ways above its intraday high of $1.3880, which it reached after stronger employment data earlier in the day. Unemployment held at 4.6% with August unemployment claims missing the forecast of -71.7K but beating July’s value of -48.9K, which was a positive for the pound. Moreover, average earnings for July ticked a tad above the 8.2% forecast to 8.3%, while the employment change came in at 183K new jobs, passing expectations of 178K.

The USD/JPY pair fell to 109.80 per dollar, while USD/CAD plunged to C$1.2600.

Oil breaks $71 level and metals glow

Gold is flirting with the $1,800/oz mark and silver has improved to $23.80/oz due to dollar weakness, which is connected to softer than expected inflation data. WTI oil is slightly above $71.00 per barrel, after worries that another storm threatens Texas following hurricane Ida, which hurt local output. That said, a rise in demand for oil is anticipated as planned roll-outs of vaccines are in the pipeline.

RBA remains a dove

Antipodean currencies also capitalised on dollar weakness with the AUD/USD pair pushing to 0.7363, while NZD/USD jumped to 0.7149. RBA Governor Lowe silenced expectations for rate hikes, reinforcing the 2024 timeline with his quote that the wage and inflation experience is quite different down under. Furthermore the RBA is not in a rush to remove accommodation.

At 22:45 GMT New Zealand’s current account is scheduled, while at 23:50 GMT Japan’s monthly machinery orders will be released.

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