31-OCT-2018, WEDNESDAY

1) Australian Dollar Gets Double Data Hit From CPI, China PMI
2) Gold Prices Fall As US Dollar Pivots From Haven To Yield-Based Support
3) Crude Oil Prices May Fall Further on EIA Output, Inventory Data
4) US Dollar May Extend Rise, Yen Eyes BoJ

1) Australian Dollar Gets Double Data Hit From CPI, China PMI

The Australian Dollar took a hit Wednesday from domestic and Chinese data which both came in weaker than expected. China’s official manufacturing Purchasing Managers Index for October was 50.2, below both the 50.6 forecast and September’s 50.8. In the logic of PMIs any reading above 50 signifies expansion for the sector in question, so Chinese makers are only in that zone by a whisker on current evidence. Moreover, October provided the weakest print since July 2016, and suggests that US trade tariffs are taking their toll.

The non-manufacturing PMI also slipped from October, but it was perkier at 53.9. AUD/USD slipped on the manufacturing news, with the Aussie clearly playing its sometime role as liquid China proxy. And this wasn’t the first economic release to hit the currency Wednesday. Domestic inflation slowed too.

Official Consumer Price Index data for the year’s third quarter showed an unexpected deceleration. Inflation rose at a 0.4% quarterly rate, below the 0.5% expected. Compared to the same peiod of 2018 the CPI was up by 1.9%, this was as the markets had forecast and below the 2.1% rate seen in the second quarter. This objectively small pullback carries significance, however because it once again takes inflation below the Reserve Bank of Australia’s target band. The RBA is supposed to keep annualized CPI gains between two and three percent over time, and has notably failed to do so this year.

The latest data show that the target remains elusive even with interest rates stuck and record lows and thought likely to remain so for all of this year and next, according to futures markets. The yawning gap in interest rate expectations between a mired RBA and a consistently tightening Federal Reserve is the key reason for AUD/USD’s clear struggle this year.

The Aussie has been sliding for the vast majority of 2018. Wednesday’s reminder of the stubborn weakness of domestic inflation – and the consequent likelihood that interest rates are going nowhere will do nothing to help its battered bulls. The RBA will set monetary policy for November next week. On current evidence the markets can expect a very dovish performance from Governor Philip Lowe and his colleagues.

2) Gold Prices Fall As US Dollar Pivots From Haven To Yield-Based Support

Gold prices fell as recovering risk appetite bolstered Fed rate hike bets, pulling the US Dollar upward and tarnishing anti-fiat alternatives. It seemed unlikely that the Greenback could pivot from the role of liquidity haven to that of yield-seeking asset overnight, but that appears to be exactly what happened.

Gold prices pulled back from resistance in the 1235.24-41.64 area, as expected. From here, breaking below the 1211.05-14.30 zone on a daily closing basis sees the next downside barrier at 1180.86, the September 28 low. Alternatively, a move above 1241.64 exposes the 1260.80-66.44 zone next.

3) Crude Oil Prices May Fall Further on EIA Output, Inventory Data

Crude oil prices fell amid worries about global oversupply. BP reported that its refineries increased output at the fastest rate in 15 years in the third quarter while API predicted that US stockpiles added 5.69 million barrels last week, topping market expectations.

Looking ahead, a pair of EIA reports – one tracking monthly energy output and the other weekly inventory flows – enter the spotlight. If the former underscores swelling US output while the latter echoes API’s projection and tops forecasts calling for a 3.1 million barrel build, oil prices may fall further.

Crude oil prices are pulling back after testing resistance guiding October’s downswing. A daily close below the October 23 low at 65.77 opens the door for a test of the 64.26-45 area. Alternatively, a move above the upper layer of support-turned-resistance set from February, now at 68.88, exposes the 70.05-26 zone. Weekly chart positioning suggests a longer-term top is in place.

4) US Dollar May Extend Rise, Yen Eyes BoJ

The US Dollar edged cautiously higher against its some of its major counterparts on Tuesday, particularly outperforming against the British Pound and Euro. Threats of a no deal Brexit overshadow GBP and S&P Global Ratings warned that such an outcome ‘could push the UK into a recession’. Meanwhile Italy remains under pressure to resolve their government budget as preliminary estimates showed its economy stagnating.

Finally, we are also getting the Bank of Japan monetary policy announcement. But the anti-risk Japanese yen may look past another status quo decision and focus on market mood. As such, we may see APAC benchmark stock indexes echo gains from Wall Street. While AUD may be more focused on near-term data, this may allow the Yen to continue depreciating.

The US Dollar has completed a falling wedge continuation pattern and has now closed at its highest point in about 16 months. This has exposed the June 20th, 2017 high at 97.87 which could act as near-term resistance next. A lack of negative RSI divergence hints that upside momentum remains strong. Still, immediate support seems to be a range just above 96.00.