Daily Overview: Aussie Surges On Higher Than Expected Inflation

 | Jul 23, 2014 04:41AM ET

The Australian dollar was the day’s best performer following inflation figures that beat estimates. The trimmed mean consumer price index, which excludes the most extreme price changing categories, is an inflation measure that the Reserve Bank of Australia closely follows when setting monetary policy. The year-on-year change came in at 2.9% versus 2.7% expected. The RBA targets inflation between 2% and 3%. Other measures of inflation were more or less in line with expectations.

The Australian inflation figures mainly disappointed those who were expecting a rate decrease out of the RBA; which was a minority view anyway. Subsequently the Australian dollar rallied to 0.9432 against the US dollar, above the key 94 cent level that has been an important focal point of trading in the last month and a half. Specifically, it has proved difficult for the aussie to sustain itself above that level.

The euro stayed under pressure against the US dollar, despite inflation data in the United States the previous day that showed that core consumer prices were not yet a threat to price stability. The euro was trading around 1.3465, having traded as low as 1.3458, which is its lowest since November of last year. This could be an important technical development for euro bears, since a breakout from the 1.35-1.39 range could lead to a test of 1.33 next.

Eurozone flash PMI business surveys due out on Thursday could be key for determining the euro’s fate in the short-term. There is little in the way of important data or economic events later in the day, with the exception of pound sterling. The minutes and votes of the 9/10 July meeting of the Monetary Policy Committee of the Bank of England will be released, while later BoE Governor Mark Carney is giving a speech.

Technical Analysis – EUR/USD strongly bearish below 1.3500