Australia QoQ CPI picks up, BoC Rate Decision Is In Spotlight

Australian inflation number were released this morning. The figures came out on the brighter side, giving the Australian dollar a small boost against some of its major counterparts. Later on, we will receive the interest rate decision from the Bank of Canada, which is currently expected to be the same as previous.

Australia CPI

This morning, Australia released its inflation numbers for the third quarter on a QoQ and YoY basis. The YoY reading came out as expected, at +0.7%. But there was a slight improvement in the QoQ figure, which showed by one tenth of a per cent higher than the initial forecast of +1.5%. As we can see on the chart below, the QoQ number jumped above the YoY figure, suggesting that inflation managed to pick up quite quickly recently, however, we will keep an eye on the Q4 readings later on, in order to see if this jump can be sustained. This gave a boost to the Australian dollar, this morning, against most of its counterparts.

As we know, the current inflation target for the Reserve Bank of Australia sits on average between 2 and 3 per cent over a certain period of time. According to the Bank, this is a sufficiently low inflation rate that does not materially distort economic decisions. As stated by the RBA: “The inflation target is defined as a medium-term average rather than as a rate (or band of rates) that must be held at all times. This formulation allows for the inevitable uncertainties that are involved in forecasting, and lags in the effects of monetary policy on the economy”.

AUD/CAD — Technical Outlook

This morning, AUD/CAD broke above its short-term downside resistance line drawn from the high of September 21 st. The pair moved further north, but is currently stalling slightly below one of its key resistance areas, between the 0.9440 and 0.9448 levels, marked by the high of October 14 thand the low of October 8 th. In order to get a bit more comfortable with larger advances, we would prefer to wait for a pop above that resistance area first, hence our somewhat bullish approach for now.

If, eventually, the rate does climb above the 0.9448 barrier, this will not only confirm a forthcoming higher high, but would also place the pair above the 200 EMA on our 4-hour chart. More buyers could see this as a good opportunity to step in. If so, AUD/CAD might end up pushing towards the 0.9503 hurdle, a break of which may clear the path to the 0.9550 level, marked by the high of October 5 th.

On the downside, if the rate drops back below the aforementioned downside line and also slides below the 0.9376 zone, marked by yesterday’s low, that may spook the bulls from the field temporarily. AUD/CAD could then slide to the 0.9326 obstacle, a break of which might set the stage for a test of the 0.9274 level, marked by an intraday swing high of October 20 th.

Canada Interest Rate In Spotlight

Today, Europe will remain relatively quiet in regards to economic data, however the spotlight will fall mainly on the Bank of Canada. The Bank is set to deliver its interest rate decision, but no fireworks are expected there, as it is believed that the Bank will keep the rate unchanged. At the prior meeting, the BoC decided to keep the interest rates unchanged until the midpoint of the inflation target range is achieved. Currently, the target range is between 1 and 3 per cent and the previous inflation reading came out at +0.5%, which is well below the target. However, the +0.5% was actually a decent uprise from the number a month before that, which was at +0.1%. This may keep the Bank from lowering the interest rate, advocating that inflation started picking up again, which might help increase consumer spending again. The Loonie may gain somewhat on the absence of any signals with regards to imminent easing, but, as a commodity-linked currency, we believe its broader path will remain dependent to developments surrounding the broader market sentiment, and especially the US elections next week.

USD/CHF — Technical Analysis

After reversing to the upside in the beginning of this week, USD/CHF continues to slowly grind higher, while balancing above a short-term tentative upside line taken from the low of October 23 rd. A the same time, the pair is now breaking a short-term tentative downside resistance line drawn from the high of September 28 th. For now, everything looks positive, hence why we will stay positive and aim for slightly higher areas.

Given that we already saw a move above the 0.9110 barrier, marked by the high of October 20 th, that may attract a few extra buyers into the game, potentially clearing the path to some higher levels. One of the first possible good resistance area might be 0.9145, marked near an intraday swing low of October 19 th. Initially, USD/CHF may get held there, however, if the buying continues, the next potential resistance target could be at 0.9165, which is the high of October 19 th.

Alternatively, if the rate suddenly falls heavily, breaks the aforementioned upside line and then slides below the 0.9061 hurdle, marked by the low of October 27 th, that may trigger more selling. USD/CHF could then be brought to the 0.9040 zone, or even to the 0.9030 hurdle, marked by the low of October 21 st.

Covid-19 Unrests

Of course, a big issue for the global economy remains the coronavirus and the measures that the governments across the globe are implementing. Over the weekend, many countries showed a sharp increase in new cases, which led to stricter measures being placed on movement. Many European states have told their citizens to stay indoors between 23:00 and 6:00, what sparked a true outrage among people. From the beginning of this week, protests, large and small, have disturbed the piece in many big European cities. It showed that people are not happy with the new curfew, as some protesters argue that this limits their human rights. On one hand, if the current unrests continue, that may eventually have its negative effect on the economy. But on the other hand, if the protests start growing quicker, this could force governments and pharmaceutical companies to try and develop the much-needed vaccine faster, in order to safeguard the people. This might help stabilise the economy and save many businesses from collapsing.

As For The Rest Of Today’s New

We will be getting the weekly crude oil inventories number from the US. The previous reading was at -1.001m, whereas the forecast currently sits at +1.110m. This means that the expectation is for a significant increase, suggesting a fall in demand. If so, this may drive the price of oil slightly to the downside, especially if the actual figure comes out even higher than the forecast.

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Originally published at https://www.jfdbank.com on October 28, 2020.