US Dollar Looks to Inflation Data to Revive Its Fortunes

Talking Points:

• US Dollar may rise as CPI data revives Fed interest rate hike speculation
• Aussie, NZ Dollars outperform courtesy of on their US cousin’s pullback
• Where will the G10 FX majors trend in Q4? Get our forecasts to find out

A lackluster offering of European economic data is likely to see financial markets looking ahead to the day’s stock of US releases. September’s CPI report seems most significant. The headline inflation rate is expected to hit a six-month high at 2.3 percent. An upside surprise echoing steady improvement in US news-flow since mid-June might revive Fed rate hike speculation, boosting the US Dollar.

The greenback was on the defensive in Asia Pacific trade. Prices have spent most of the week in corrective mode having soared to a one-month high last week as investors upgraded the probability that Janet Yellen and company will resume the tightening in December. Futures markets imply the priced-in change of an increase at 76.7 percent, a hair lower versus a week prior but miles ahead of the 38.9 percent a month ago.

Not surprisingly, the yields-oriented Australian and New Zealand Dollars led the way higher among the major currencies. The two currencies enjoy the benefit of the baseline lending rates in the G10 FX space, making them particularly sensitive to the prospect that the Fed’s rate hike cycle will erode their appeal and elevate the US unit as an object of carry-trade demand.

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Asia Session

European Session

** All times listed in GMT. See the full DailyFX economic calendar here.

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

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