Dollar Strengthens as US Equities Hit Records Again, Aussie Mildly Lower after RBA

US equities surged to new record highs overnight on solid manufacturing data and dollar followed by gaining broadly in Asian session today. DOW jumped 152.51 points or 0.68% to close at 22557.6. S&P 500 rose 9.76 pts or 0.39% to end at 25.29.12. NASDAQ also gained 20.76 pts or 0.32% to 6516.72. 10 year yield was steady, though, failing to take out last week’s high at 2.344 but still rose 0.011 to 2.337. While the greenback is clearly stronger against European majors, it’s strength against commodity currencies is less apparent. Aussie dips mildly after RBA left interest rates unchanged. But no follow through selling is seen yet below 0.78 handle.

Fed Kashkari prefer Fed to stand pat

Minneapolis Fed President Neel Kashkari, a know dove, criticized that Fed’s monetary accommodation over the past few years is "likely an important factor driving inflation expectations lower". And he preferred not to hike interest rates again until core PCE hitting 2% yoy, a large drop in headline unemployment rate signalling using up of remaining labor slack, or surprise increase in inflation expectations. The latest FOMC rate projections suggest that Fed is still on course for another hike in December, and three more next year. Fed fund futures are pricing in 77.8% chance of a December hike.

ECB Praet markets allow ECB to slow down assess purchase

ECB chief economist Peter Praet said yesterday that in more normal market conditions investors may become "more patient" and be "better able to evaluate the stimulus that can be expected to come from a purchase plan that is to be executed over a more extended time interval." On the other hand, in highly uncertain conditions, "front loading the accumulation of a given stock of purchases more forcefully signals the central bank’s commitment to inject the degree of accommodation necessary to support the recovery." With relatively calm markets now, ECB could opt for extending the asset purchase program with reduced monthly purchase for a longer period of time.

RBA left rate unchanged at 1.50% as expected

RBA left interest rate unchanged at 1.50% today as widely expected. In the accompanying statement, RBA Governor Philip Lowe noted that recent data are "consistent with the Bank’s expectation that growth in the Australian economy will gradually pick up over the coming year." Also,  "a large pipeline of infrastructure investment" will also be " supporting the outlook". However, "wage growth remains low" and "is likely to continue for a while yet". RBA only warned that appreciation in the exchange rate "would be expected to result in a slower pick-up in economic activity and inflation than currently forecast."

On the data front

Australia building approvals rose 0.0% mom in August. Japan consumer confidence improved to 43.9 in September, monetary base rose 15.6% yoy. UK construction PMI and Eurozone PPI are the main features in European session.

AUD/USD Daily Outlook

Daily Pivots: (S1) 0.7798; (P) 0.7823; (R1) 0.7850; More…

AUD/USD breaches 0.7798 again today but there is no follow through selling below 0.7807 near term support. Intraday bias remains neutral first. As noted before, considering bearish divergence condition in daily MACD, firm break of 0.7807 support will indicate near term reversal. Outlook will then be turned bearish for 55 week EMA (now at 0.7674) first. Meanwhile, rebound from 0.7807 will retain bullishness. Above 0.7907 minor resistance will turn bias back to the upside for retesting 0.8124 high.

In the bigger picture, rise from 0.6826 medium term bottom is seen as corrective pattern. In case of further rally, strong resistance should be seen at 38.2% retracement of 1.1079 to 0.6826 at 0.8451 to limit upside. Meanwhile, firm break of 0.7807 is the first signal that such correction is focused. Break of 0.7328 will bring retest of 0.6826 low.

Economic Indicators Update