The AUD is struggling in the face of higher US bond yields, but that only paints one side of the speculative landscape. As pointed out yesterday; domestic deflation demons were unlikely excised by the stronger than expected CPI headline, especially in the face of the downside miss on the trimmed mean. While the sentiment is running near nil for an RBA rate cut next week, bets are increasing that Dr Lowe may address the CPI miss along with this month’s destitute domestic employment print in next week’s statement. Given the scope for repricing of RBA rate cut expectations lower, and coupled with breadth for the US curve to reprice higher, the Aussie could find itself at the mercy of diverging policy expectations. Add in the US election risk premium and the Aussie will likely struggle for traction near term.
USDJPY continues trading in line with the US yield curve… The current view is that USDJPY could grind higher in the coming days. At a minimum, we should expect an upward shift in the short-term range to 104.75-105.75. However, a near-term break of 106 still feels unlikely with the Fed Dec rate hike premium all but factored; it seems a
“ but it also seems a poor risk reward for standing in front of the USD freight train suggesting traders will likely support dips to the 104.75-105 levels.”
