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Aussie Moves Higher Testing Resistance After Robust CPI Report

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Aussie Moves Higher Testing Resistance After Robust CPI Report

The Australian dollar was able to quickly turn sentiment on the back of a stronger than expected consumer price index report. Australia reported that headline CPI rose 0.8% quarter over quarter in the fourth quarter compared to the 0.4% the market expected. The year over year pace increased to 2.4% from 2.2%. The consensus had looked for a decline to 2.1%.

The core inflation measure, known as the trim mean measure, increased by 0.9% quarter over quarter and 2.6% year over year, which represents a 2-year high for core inflation. The market had previously appeared to have discounted almost a 50% chance of an RBA rate cut in during the first quarter which has now been wiped out.

In Japan the BOJ meeting concluded with no change in policy and Governor Kuroda’s press conference failed to provide much fresh news for market participants to absorb. The dollar has been largely confined to yesterday’s ranges against the yen.

The minutes from the BoE meeting earlier this month showed a greater recognition that the economy’s spare capacity may be limited, which would seem to warn of the risk of upward pressure on prices. The UK reported that the ILO measure of unemployment fell to 7.1% from 7.4% in November. Which could generate wage pressures.

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The AUDUSD bottomed just below 0.88 and is testing resistance near the 10-day moving average near 0.8870. Momentum has quickly changed with the MACD generating a buy signal where the spread (the 12-day moving average minus the 26-day moving average) crossed above the 9-day moving average of the spread. The RSI is climbing with price action reflecting accelerating momentum while printing near 45, which is on the lower end of the neutral range.

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