Australian Dollar Shines As USD Awaits CPI Print, Oil Price Supported

Australian Dollar Shines As USD Awaits CPI Print, Oil Price Supported

Highlights:

  • Australian Dollar top performer on widening sovereign yield spread and strong China data
  • Yellen comment opens the door for reluctant hikes and focus on CPI on Friday
  • IEA in doubt about Oil market rebalancing as OPEC compliance in June falls
  • Sentiment Highlight: EU Equity bears continue to fight trend, contrarian view favors further gains

AUD/USD is having a banner week for the year as the Australian Dollar rose for the fifth consecutive day. While Fed Chair Janet Yellen, continued to give fodder to USD Bears that helped support the Aussie, there are supportive factors arising outside the US that help show the potential that AUD/USD has for further gains. A key driver of late has been the gains in the base metals markets, which have been driven higher by reports that China is looking to cap capacity on production in aluminum, iron ore, and other key commodities that would explicitly benefit AU. Additionally, the sovereign yield spread on AU bonds to US Treasuries is aligning with improving market sentiment in China and strong base metals to help AUD/USD have a fighting chance to break through the 2017 price resistance of 0.7750

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The dollar is working on a choppy continuation of the 2017 trend lower on Thursday. The key event of the trading session was comments Yellen on US inflation, which will be used to help interpret Friday’s US CPI print. However, her comments about the Balance Sheet run-off that is expected to kick off later this year was reason for traders to pare back their expectations on the pace of Fed interest rate increases. The key market to watch as the print comes out will be the US 10-year yield (chart below), USD/JPY that reversed off key resistance earlier this week, and EUR/USD that is close to closing on a weekly basis at the highest levels since the opening weeks of 2015.

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Lastly, Crude Oil is giving investors conflicting signals as it rose for the fourth day based on a settlement in futures on hopes that global demand (hat tip China) was improving. Earlier this week, we had the largest DoE US supply draw since October. However, the IEA shared that they were losing confidence that the Oil market would rebalance from the supply glut at the same pace they originally predicted at H2 2017 due to falling compliance from OPEC members in meeting their expected cuts.

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Closing Bell’s Top Chart: July 13, 2017, US 10yr Yield could extend higher (bond selloff) if CPI US surprises

Australian Dollar Shines As USD Awaits CPI Print, Oil Price Supported

Chart Created by Tyler Yell, CMT

Tomorrow's Main Event:USD Consumer Price Index (YoY) (JUN) Exp: 1.7%

IG Client Sentiment Highlight: EU Equity Bears fighting a trend that does not want to quit

The sentiment highlight section is designed to help you see how DailyFX utilizes the insights derived from IG Client Sentiment, and how client positioning can lead to trade ideas. If you have any questions on this indicator, you are welcome to reach out to the author of this article with questions at tyell@dailyfx.com.

Australian Dollar Shines As USD Awaits CPI Print, Oil Price Supported

France 40: Retail trader data shows 41.0% of traders are net-long with the ratio of traders short to long at 1.44 to 1. The number of traders net-long is 6.5% lower than yesterday and 40.7% lower from last week, while the number of traders net-short is 1.5% lower than yesterday and 81.2% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests France 40 prices may continue to rise. Traders are further net-short than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger France 40-bullish contrarian trading bias. (Emphasis mine)

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Written by Tyler Yell, CMT, Currency Analyst & Trading Instructor for DailyFX.com

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