Summary:

• Australian dollar is relatively weak following domestic and foreign macroeconomic readings
• Trump focuses on infrastructure, abstains from commenting trade issues
• BoJ’s summary of opinions suggests a possible change in rhetoric if the economy continues its expansion

In spite of the fact that the US dollar is again the weakest currency among its major peers in the G10 basket, the Australian dollar is doing not well and trading almost flat on the day. This stems from a package of the data both domestic and foreign. Let’s begin with Australia’s inflation which came in at 1.9% yoy missing the consensus set at 2% yoy but making a rise from 1.8% yoy seen in the third quarter. On top of that, trimmed mean (a core gauge where the RBA targets a range between 2 and 3%) stayed unchanged at 1.8% yoy matching expectations as well. Finally, weighted median CPI beat the street’s call at 1.9% yoy and came out at 2% yoy.

Australian inflation remains below the target based on the latest data for Q4. Source: Macrobond, XTB Research

To sum up, one may forecast that today’s reading is not a game changer when it comes to the future rate hike there. Thus, the base scenario seems to suggest no a hike this year even as the labour market remains strong which in theory should cut back on labour slack but it has not been witnessed yet (the landscape looks pretty similar elsewhere). Moods among AUD traders could have deteriorated a bit after the Chinese PMIs where we got a slowdown in manufacturing (January) from 51.6 to 51.3 whereas a non-manufacturing sector showed an improvement from 55 to 55.3. Keep in mind that manufacturing is the most important sector in China, hence it should not be surprising that investors tend to put more emphasis on it.

The AUDUSD looks as if it would be ready for a pullback. If the nearest supply zone obstructs further gains it could encourage to bet against the Aussie. Source: xStation5

Furthermore, there was a long-awaited speech (State of the Union) delivered by US President Donald Trump which, however, did not provide any reasons to see rises on the US dollar or the domestic stock market. He referred to infrastructure saying that the Congress ought to produce legislation that generates at least $1.5 trillion for new infrastructure investment. However, most attention was paid to lack of explicit remarks concerning US trade issues. According to WSJ Trump devoted just 78 words of his 5,200-word address to the subject he hit hard during the 2016 campaign. As a result, some guesswork emerged that it could be a potential turning point when it comes to softening of trade policy but not necessarily as it could have stemmed solely from a dispute between Trump’s aides (they may have other points of view as for whether Trump should single out trade issues).

The SP500 (US500 on xStation5) made the second decline in a row yesterday but a key support remains in place. Even as the US index did fall on Tuesday bears were halted by an upper limit of a broken channel, hence it appears to a key place to watch for right now. Source: xStation5

Finally, let’s write something about the BoJ’s summary of opinions from the January’s meeting. The document stressed “there may be a chance BoJ must mull adjusting level of yield targets of the economy, price moves continue to improve”. What could it mean for JPY traders? So, even as Kuroda underlined in Davos that there is still some distance to achieve the inflation target, there could be different opinions among BoJ’s members (more hawks) and therefore investors should pay more attention to subsequent meetings. Anyway, the JPY is trading just 0.1% higher at the time of writing.