• US inflation struggling over strong dollar
  • New Zealand and Australia see unwanted rallies
  • EURUSD slowly climbs higher
  • Sterling may see volatility next week

Today’s markets will be focused on the US and its poor inflation outlook. Producer prices were once again negative as manufacturers cut prices in order to pass on lower raw material costs to consumers. The strong dollar is a factor as well as loose monetary policy elsewhere. There have been as many as 49 rate cuts globally this year.

PPI on the year has fallen to 0.8% and will likely push CPI by 0.1-0.2 in its coming iteration. The latest jobless claims numbers have managed to hold the dollar from getting crushed; jobless claims fell to the lowest 4 week average since April 2000. This is a fine example of the divergence of US data at the moment; strong labor data isn’t translating into other areas of the economy.

may-14 graph

Elsewhere, the Kiwi dollar is the best performer of the Asian session following a retail sales increase of 2.7% on the quarter. This smashed expectations of an improvement of 1.6% and has driven New Zealand bond yields higher, only making the currency that more attractive to investors.

Both the AUD and NZD have rallied hard over the past week, something that their respective central banks will hardly be pleased about. I personally think that both central banks have intervened as much as they are prepared to and, without a run of stronger data from the US, will have to swallow this near term local currency outperformance.

Elsewhere still, markets are fairly tired. Sterling is currently enjoying its best 5 days against the USD since October 2009 but the rally looks overextended. Likewise, the stretch in EURUSD could easily run over the 1.15 mark, but may take it’s time in getting there. The year started with overt and extraordinary USD strength and a little pressure release was always on the cards. Some soul searching is needed before the next move.

EUR-USD touched a 2 month high this morning as the sell-off in European debt has continued. USD bears are focusing on 1.15 in the short term and this may provide an opportunity for the dollar to find an anchor point.

GBP-USD is at the highest level in 6 months with politics no longer a weight on sterling. The data calendar may provide additional volatility for the pound next week; inflation is set to remain poor courtesy of the strong pound while the Bank of England minutes may see a couple of members vote for a rate rise.

USD-CAD was unable to take advantage of a weak greenback on today’s Canadian housing market. Prices rose 1.2% on the year, missing estimates and consigning the pair to trade sideways for the rest of the day

AUD-USD is like a rocket ship as mentioned above; something that must be driving policymakers round the bend. 0.8250 is an important level for the pair.

Have a great day.