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US Dollar May Rise if Inflation Data Boosts Fed Rate Hike Bets

US Dollar May Rise if Inflation Data Boosts Fed Rate Hike Bets

2015-09-16 07:47:00
Ilya Spivak, Head Strategist, APAC
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Talking Points:

  • Aussie Dollar Gains Alongside China’s Shanghai Composite in Asia Trade
  • US Dollar May Rise After Overnight Dip as CPI Boosts Fed Rate Hike Bets
  • TrackEconomic News Directly on Your Charts with the DailyFX News App

The Australian Dollar outperformed in overnight trade in a move tracking a surge in the Shanghai Composite stock index, pointing to firming risk appetite as the likely catalyst. China’s equity benchmark rebounded after two days of aggressive losses as traders continued to game the probability of a Federal Reserve interest rate hike later this week.

The US Dollar corrected lower after issuing the largest daily gain in 2 weeks yesterday as front-end Treasury yields jumped ahead of the sit-down in an apparent recalibration of market expectations reflecting a real chance that the onset of tightening is indeed at hand. Still, Fed Funds futures are pricing in a mere 28 percent likelihood of a rate hike. Economists are closer to an even split on the issue, with 48 percent of respondents in a Bloomberg survey favoring a 25 bps increase.

Looking ahead, Augusts’ US CPI report takes top billing. The core year-on-year inflation rate is expected to rise to 1.9 percent, the highest in 13 months. A strong outcome may bolster the chance for a rate increase in the minds of investors, boosting the US Dollar but weighing on risk appetite. The sentiment-linked currencies of the so-called “commodity dollar bloc” are likely to suffer most in such a scenario, while the anti-risk Japanese Yen stands to gain. The Euro may emerge as a beneficiary of risk aversion once again, although strength against the greenback seems less likely if Fed rate hike bets are the source of markets’ souring mood. Needless to say, a soft CPI print stands to deliver the opposite dynamic.

UK Jobless Claims figures are likewise on tap, with forecasts calling for another 5k decline. Leading survey data has sent ominous clues about labor conditions in August however, opening the door for a downside surprise. Such a result may weigh on the British Pound as traders scale back imminent BOE interest rate hike bets.

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Asia Session

GMT

CCY

EVENT

ACT

EXP

PREV

22:45

NZD

Current Account GDP Ratio YTD (2Q)

-3.5%

-3.7%

-3.4%

22:45

NZD

BoP Current Account Balance (2Q)

-1.216B

-1.500B

0.821B

00:30

AUD

Westpac Leading Index (MoM) (AUG)

-0.3

-

0.1%

05:00

JPY

Bank of Japan's Monthly Economic Report

-

-

-

06:00

JPY

Machine Tool Orders (YoY) (AUG F)

-16.5%

-

-16.5%

European Session

GMT

CCY

EVENT

EXP

PREV

IMPACT

08:30

GBP

Claimant Count Rate (AUG)

2.3%

2.3%

Medium

08:30

GBP

Jobless Claims Change (AUG)

-5.0K

-4.9K

Medium

08:30

GBP

Average Weekly Earnings (3M/Y) (JUL)

2.5%

2.4%

Low

08:30

GBP

Weekly Earnings ex Bonus (3M/Y) (JUL)

2.9%

2.8%

Low

08:30

GBP

ILO Unemployment Rate 3Mths (JUL)

5.6%

5.6%

Low

08:30

GBP

Employment Change (3M/3M) (JUL)

18K

-63K

Low

09:00

CHF

Credit Suisse ZEW Survey Expectations (SEP)

-

5.9

Low

09:00

EUR

Eurozone CPI (MoM) (AUG)

0.0%

-0.6%

Medium

09:00

EUR

Eurozone CPI (YoY) (AUG F)

0.2%

0.2%

Medium

09:00

EUR

Eurozone CPI Core (YoY) (AUG F)

1.0%

1.0%

Medium

09:00

EUR

Eurozone Labour Costs (YoY) (2Q)

-

2.2%

Low

Critical Levels

CCY

Supp 3

Supp 2

Supp 1

Pivot Point

Res 1

Res 2

Res 3

EURUSD

1.1146

1.1216

1.1243

1.1286

1.1313

1.1356

1.1426

GBPUSD

1.5123

1.5250

1.5297

1.5377

1.5424

1.5504

1.5631

--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

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