The Australian dollar was unable to make any headway on Tuesday as AUD/USD was blocked well below the 0.9000 level. The latest RBA minutes again made reference to the currency being over-valued and the government mid-year budget review was generally pessimistic. AUD/USD was initially subjected to renewed selling as it dipped towards 0.8900.
The headline UK consumer inflation data was marginally weaker than expected with the annual rate falling to 2.1% for November from 2.2% previously which was the lowest reading for four years. There were also subdued readings for producer prices which suggested that inflationary pressure are low.
The data increased speculation that the Bank of England might be able to resist any monetary-policy tightening for longer than expected which undermined Sterling. Technical factors remained important with selling as GBP/USD was unable to move through 1.6350 with a dip through 1.6285 also triggering fresh stops.
The German data was again stronger than expected with a ZEW business confidence reading of 62.0 from 54.6 the previous month, the highest reading since 2006. EUR/USD gained only very limited support following the data and edged back to the 1.3750 area following the inability to break resistance levels near 1.38 with the pair drifting ahead of the US open.
The headline US consumer inflation reading was lower than expected with prices unchanged for November, but core prices rose 0.2% compared with expectations of a 0.1% gain which suggests that underlying inflation is not declining, a potential green light for Fed tapering. There was also a solid reading for the NAHB house-price index, reinforcing expectations of US out-performance as the dollar initially moved higher.
European currencies tended to be on the defensive during the New York session with a paring of dollar shorts ahead of the important Fed policy decision on Wednesday. EUR/USD dipped to lows around 1.3725 as USD/CHF edged towards 0.89 while GBP/USD was subjected to renewed stop-loss selling once 1.6250 support gave way with lows around 1.6220.
AUD/USD was also under pressure with a slide to fresh 3-month lows below 0.89 as USD/CAD looked to retake the 1.06 level. There was a more cautious stance towards carry trades as USD/JPY was held just below 103.