Today’s Key Market Drivers: 16th October 2019

Today is Inflation day.

There are no less than 4 important inflation numbers to be released today with New Zealand, the UK, Euro Zone and Canada all releasing CPI readings. Given the UK, Euro Zone and Canadian inflation numbers are monthly numbers I expect the New Zealand figure will likely have a bigger impact on the short-term direction of the Kiwi Dollar simply because the inflation reading is based on a reading over a quarter and not a month.

Australia and New Zealand are unique in the fact that both countries do not attempt to measure inflation monthly and report their CPI figures only quarterly, which to be frank is a far more accurate way of measuring inflation. We also tend to find the probability of a better or worse than expected reading of inflation happens when it is measured and released after a quarter rather than a month. The chances of it moving higher or lower increases and that is exactly what has happened this morning.

The inflation reading for New Zealand was better than expected this morning and the Kiwi Dollar rallied on the news as this is a sign the economy does not need any more interest rate cuts for the time being.

Pound soars on potential Brexit deal.

The Pound surged higher on Tuesday following reports the European Union is drawing up paperwork for a Brexit deal with the intention to present it at an EU summit which is taking place in Brussels on Thursday and Friday. The UK Prime Minister will be in attendance and this will be one of the last opportunities he has to strike the deal that will finally see the UK leave the European Union. Whatever deal he strikes he still needs to get it through the UK parliament and that in my view will be the stumbling block.

Could a Brexit deal really happen on or before October 31? Personally, I doubt it and I am betting the UK will need to ask for another extension. Whatever Boris and his EU counterparts come up with still needs to get through the UK parliament and in my opinion, it’s the UK parliament that needs a kick up the ass for continuing to delay what should have occurred in March this year.

US company earnings season kicks off with a bang.

The first big day of third-quarter earnings season kicked off with a bang on Tuesday with the world’s largest investment bank JP Morgan exceeding profit estimates and delivering record revenue results. CNBC reports that out of the 34 companies that have reported so far 29 of them beat market expectations. Analysts were expecting 3rd quarter earnings to come in close to 5% weaker but so far, the so-called experts have been proved wrong again.

Why are US company earnings reports important to follow as an FX trader? The US is the world’s largest economy and if US companies are showing strong profits and growth it is less likely the economy is weakening and therefore it is less likely the US Federal Reserve will lower interest rates. Strong company earnings in the US is a positive sign for US Dollar demand and as you will see on your charts this morning the US Dollar was supported through Tuesday’s US trading session.

It is early days but the signs are the US companies are still in good shape.

RBA Minutes point towards more rate cuts.

The RBA monthly Minutes released on Tuesday clearly showed the RBA is ready and prepared to continue to drop interest rates if the jobs numbers and economy demand it. I note this morning the IMF has said that lowering interest rates in Australia won’t be enough to stimulate the economy that is currently caught up in a sharp downturn. Traders are pricing in a 40% chance the RBA cuts rates on Melbourne Cup Day and tomorrow’s jobs number is going to give us the answer as to what they will do.

The IMF report also said it expects Australian growth to fall by 1% in 2019. It expects growth to be the slowest since the GFC coming in at 1.7% this year compared to 2.7% in 2018. Some have dubbed the current economic climate in Australia the “era of irrationality, impotence and inequality.”

In other news.

US Retail Sales will be closely watched today for any slow down or pickup in consumer spending. If the number is out of line with expectation you can expect to see the US Dollar rally on a better number and fall on a weaker number.

Consistency is what transforms average into extraordinary.


About the Author: Andrew Barnett

Andrew is a professional trader and successful investor who has a strong focus on education. He is a regular Sky News Money Channel Guest and one of Australia’s most awarded and respected financial experts and is regularly contacted by the Australian Media for the latest on what is happening with the Australian Dollar. Director at LTG GoldRock, Andrew Barnett, guides thousands of traders around the world in the live market on a daily basis, advising them on buy and sell directions, as well as trading his own personal account. Andrew, a regular keynote speaker at trading and wealth-creation events throughout the Asia Pacific region, is an authorized representative registered with the Australian Securities and Investment Commission (ASIC).

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