Dollar dipped briefly in early American session while U.S. futures rebounded after producer price data showed cost pressures easing modestly. The report emboldened bets on further Fed easing, with odds of a 50bps cut next week edging up to 10% and expectations for a back-to-back October move climbing back toward 80%.
Still, traders appeared reluctant to commit heavily ahead of Thursday’s CPI release. The inflation print will be decisive for the September FOMC outcome and the broader policy path. For now, the market is content to price in a dovish tilt without taking on larger risk positions.
Judging from today’s price action, however, Dollar looks vulnerable. Any signs of softer-than-expected inflation could accelerate selling, leaving the greenback under renewed pressure across major pairs. The CPI report could therefore act as a tipping point for markets already primed for easing.
Overall in the currency markets today, Aussie led gains, boosted by optimism that Fed easing will give China’s PBoC room to cut rates and stimulate its sluggish economy. Kiwi followed closely, with Sterling also firmer, reflecting a broader risk-on tone.
On the weaker side, Loonie was the worst performer, trailed by Euro and Swiss Franc. The common currency’s attention is fixed on Thursday’s ECB decision, where policymakers are expected to stand pat. Any signal of a prolonged pause could give Euro some breathing space. Dollar and Yen traded mixed in the middle of the pack.
In Europe, at the time of writing, FTSE is up 0.21%. DAX is up 0.17%. CAC is up 0.74%. UK 10-year yield is up 0.016 at 4.64. Germany 10-year yield is up 0.01 at 2.67. Earlier in Asia, Nikkei rose 0.87%. Hong Kong HSI rose 1.01%. China Shanghai SSE rose 0.13%. Singapore Strait Times rose 1.14%. Japan 10-year JGB yield rose 0.003 to 1.568.
U.S. PPI falls -0.1% mom in August, annual rate cools to 2.6% yoy
U.S. producer prices unexpectedly fell in August, with PPI slipping -0.1% mom versus expectations of a 0.3% mom gain. The decline was driven by a -0.2% mom drop in final demand services, while goods prices edged higher by 0.1% mom.
On a year-over-year basis, PPI slowed sharply to 2.6% yoy from yoy 3.3% in July, undershooting forecasts of 3.3% yoy and signaling easing price pressures at the factory gate. The slowdown will be welcomed by markets seeking evidence that inflationary pressures are moderating.
However, underlying measures stayed firmer. Core PPI, excluding food, energy, and trade services, rose 0.3% mom, a fourth straight month of increase, leaving the annual rate at 2.8% yoy — the fastest since March.
China CPI falls -0.4% yoy, core inflation hits 2-1/2 year high
China’s consumer prices slipped deeper into deflation in August, with CPI down -0.4% yoy after July’s flat reading, worse than expectations of -0.2% yoy and the weakest in six months. Food prices were the main drag, falling -4.3% yoy versus -1.6% yoy previously. On a monthly basis, CPI was unchanged, undershooting forecasts for a small 0.1% mom rise.
At the same time, core inflation showed signs of life, rising 0.9% yoy in August compared with 0.8% yoy in July — the fastest pace in two and a half years. The pickup suggests underlying demand in services and other non-food sectors is holding up better than headline numbers imply, even as consumers face falling food costs.
Producer prices continued to contract, though at a slower pace. PPI dropped -2.9% yoy, in line with expectations and an improvement from -3.6% yoy in July. The figures highlight China’s ongoing struggle with persistent factory-gate deflation, which has now lasted nearly three years.
Aussie Strength Builds in Crosses as China CPI Opens Door to Stimulus
Australian Dollar jumped further today, particularly in cross rates, as risk appetite in China improved. The move was fueled by gains in Chinese equities after inflation data suggested room for further stimulus, with Hong Kong’s Hang Seng Index climbing to a four-year high.
The -0.4% yoy decline in China’s highlighted weak domestic demand and strengthened the case for the PBoC to cut borrowing costs. Producer prices also stayed in deflation, highlighting the pressures on manufacturers. More importantly, the Fed’s shift toward easing to reduce pressure on Yuan exchange rate, giving the PBoC greater latitude to stimulate without sparking destabilizing outflows.
Technically, Hong Kong’s HSI remains in a steady uptrend, with D MACD showing signs of momentum returning. For now, outlook will stay bullish as long as 25013.26 support holds. Current up trend should be on track to 161.8% projection of 14597.31 to 22770.85 from 14794.16 at 27905.69, which is close to 28000 psychological level.
AUD/JPY is now pressing 97.41 key resistance. Further rise is expected as long as 96.29 support holds. Sustained trading above 97.41 will pave the way to 38.2% projection of 86.03 to 97.41 from 94.38 at 98.72, and then 61.8% projection at 101.41.
AUD/CAD’s rally continues today and broke through 0.9218 structural resistance. Current up trend should target 61.8% projection of 0.8440 to 0.9041 from 0.8902 at 0.9273.
GBP/AUD also edges lower today and near term outlook remains bearish for 61.8% projection of 2.1643 to 2.0478 from 2.1003 at 2.0283 next.
USD/CHF Mid-Day Outlook
Daily Pivots: (S1) 0.7934; (P) 0.7958; (R1) 0.7999; More….
Intraday bias in USD/CHF remains neutral for the moment and some more consolidations could be seen above 0.7914 temporary low. But risk will stay on the downside as long as 0.8071 resistance holds. Below 0.7914 will bring retest of 0.7871 low. Firm break there will resume larger down trend. Next target is 61.8% projection of 0.8475 to 0.7871 from 0.8170 at 0.7797.
In the bigger picture, long term down trend from 1.0342 (2017 high) is still in progress. Next target is 100% projection of 1.0146 (2022 high) to 0.8332 from 0.9200 at 0.7382. In any case, outlook will stay bearish as long as 0.8475 resistance holds.
