FX Market Summary 04-23-2014: Inflation Data Batters Aussie

Australian dollar volatility was the main feature in Asia on Wednesday. The latest inflation data was weaker than expected with consumer prices increasing 0.6% for the first quarter from 0.8% in the previous three-month period while core prices rose 0.5% from 0.9% previously, both data sets registering sharp misses compared with consensus forecasts. In response, AUD/USD dipped sharply to test support below 0.93 with a soft reading for China’s HSBC flash PMI index reinforcing downward pressure on the currency.

USD/JPY was unable to make any progress on the upside and spiked lower during European trading with some evidence of stop-loss yen buying as the pair dipped to lows below 102.20.

Mixed Euro-zone data triggered initial Euro volatility during the European session even though overall ranges were still relatively subdued. EUR/USD was put on the defensive by weaker than expected French PMI data, but support in the 1.3800 region held comfortably and there was fresh buying support following better than expected data from both Germany and the Euro-zone as a whole. EUR/USD was still unable to break above the 1.3850 resistance area and edged lower into the New York open.

The latest Bank of England minutes again registered unanimous votes for interest rates and quantitative easing to be left on hold at April’s meeting. There were no major new areas of discussion with a further debate surrounding the amount of unused capacity in the UK as the economy strengthened. There were some concerns surrounding Sterling’s level and these fears are likely to have increased since then given further currency gains. Although the latest monthly public borrowing data was slightly better than expected which enabled the government to meet its annual target, the deficit was still above £100bn and 6.5% of GDP for 2013/14.

GBP/USD had already priced in a substantial amount of favourable news and was unable to make any break of resistance in the 1.6830/50 region which triggered a correction back below 1.6800 as the Euro corrected higher after clinging to 0.82 support yesterday.

A slightly weaker than expected reading for the US PMI manufacturing index at 55.4 for April from 55.5 had little effect while a weaker than expected figure for new home sales prevented the dollar from gaining any significant traction early in the New York session. EUR/USD consolidated above 1.3800 and USD/JPY was unable to regain the 102.50 level.

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