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USD Whipsaws Following Weak CPI Data And Fed Comments

USD Whipsaws Following Weak CPI Data And Fed Comments

2016-08-16 13:27:00
Omar Habib,
Share:

Talking Points:

- CPI report came in weaker-than-expected in July.

- More mixed U.S. data as Housing Starts beat expectations but Building Permits came in below.

- AUD/USD falls sharply as the USD strengthens on the news; USD/CAD spikes higher.

The U.S. Consumer Price Index was weaker-than-expected in July, with the headline reading slowing to an annualized 0.8% from 0.9% the month prior. The core reading, which excludes food and energy prices, grew an annualized 2.2% amid expectations for a 2.3% print.

Building Permits came in at an annualized 1152K, which were below expectations for a 1160K print, marking a 0.1% decline for July. On the other hand, Housing Start rose 2.1% during the same period, exceeding forecasts for a 0.8% contraction, with the annualized reading coming at 1211K versus 1180K expected.

Upon release, New York Fed President William Dudley also hit the headlines, with the permantent voting-member spoke saying that CPI inflation was little changed, on balance, in recent months. He reiterated the Fed view that Fed Funds markets were underpricing the path of rate hikes and that September was still on the table. He also played down fears of uncertainty surrounding Brexit and the US election. As a result, the initial bearish U.S. dollar reaction to the mixed data pritns were largely muted as Mr. Dudley continued to endorse the idea of a 2016 Fed rate-hike.

Here are the data thatimpacted theUS Dollar this morning:

- USD Consumer Price Index (JUL): +0.8% versus +0.9% expected, from +1.0% (y/y).

- USD Core Consumer Price Index (JUL): +2.2% versus +2.3% expected, from +2.3% (y/y).

- USD Housing Starts (JUL): +2.1% versus -0.8% expected, from +5.1% (m/m).

See the DailyFX economic calendar for Tuesday, August 16, 2016

Chart 1: AUD/USD 1-minute Chart (August 16, 2016 Intraday)

USD Whipsaws Following Weak CPI Data And Fed Comments

In the immediate wake of the data, the US Dollar spiked lower against the Australian Dollar, but the market reaction was short-lived following the fresh comments from New York Fed President Dudley. Despite the advacing into $0.7748, the failed attempt to test the monthly high ($0.7759) may spur a near-term cosolidation in the exchange rate as market participants digest the fresh developments. With FX volatility edging higher again, it’s the right time to review risk management principles to protect your capital.

--- Written by Omar Habib, DailyFX Research

For comments or feedback, e-mail feedback@dailyfx.com

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