CPI Sends Australian Dollar to Record Highs

Australian CPI sends AUDUSD to record highs, German inflation set to remain unchanged, UK CBI orders keeps growth story in focus and US debt ceiling saga rumbles on ahead of durable goods data. Silver breaks above $41 as Ashraf warned in Monday's Premium Intermarket Insights. The case was confirmed on Tuesday with illustrations of charts relative to gold. Premium Trades also shorted USDJPY to hit most of the targets 12 hours later.

Yesterdays decision by the Reserve Bank of India to raise interest rates by 50 basis points, more than the 25 points expected signals the determination of emerging market economies to deal with rising pricing pressures, as they followed in the footsteps of Brazil and China in the last two weeks in tightening monetary policy. It would also appear that pricing pressures in the Australian economy are also a cause for concern.

Australian CPI for the latest quarter saw prices rise by 0.9%, above market expectations of 0.7%, though still below the previous quarters 1.6%. This pushed the year on year rate up to an elevated 3.6%, well above expectations, and undoing the effects of last weeks note from Westpac which suggested that the next move in rates for the RBA could be lower by the end of this year. This higher than expected number throws the focus back onto the next RBA meeting as speculation of a rate rise moves back onto the agenda, and sends the Australian dollar to new record highs against the US dollar.

In Germany higher prices are also likely to be the centre of attention even though the high value of the euro could well weigh down on imported inflation, with CPI for July expected to remain benign on a monthly basis, at 0.2% and constant at 2.3% on an annualised basis, and throwing into the spotlight the ECBs fixation about an inflation problem that doesnt appear to be there, despite council member Noyers claims to the contrary yesterday. Import prices for June are expected to have slipped back 0.2%.

In the UK the focus remains on the level of growth in the UK economy after yesterdays Q2 GDP figures confounded the Cassandras who thought that the economy would contract. A figure of 0.2% while not exactly pulling up trees was pretty much as expected. Todays CBI industrial orders for July look set to keep the focus on the growth story and are expected to show a contraction to -3 from a figure of 1 in June.

Disappointing Richmond Fed and housing data yesterday keeps the focus on the US economy, with the release of durable goods later this afternoon. While the continued political saga between Democrats and Republicans continues to sew uncertainty into the US economy, the figures could well also disappoint as the bickering continues and the US dollar continues to get caned, especially against the Swiss franc where it once again made fresh lows.

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