Dollar further extends recent decline on the back of strong risk appetite in the markets. Asian stocks are broadly higher following strength in US equities which saw DOW closed above 10000 marks for the first time in a year. Crude oil also edged higher to 75.96 while Gold is consolidating around 1060 level. Dollar index, on the other hand, dives to new 2009 low of 75.21 and is still under tremendous pressure. While major currencies are generally stronger against dollar, New Zealand dollar is particularly strong after Q3 inflation reading beat expectations overnight.

FOMC minutes for September's meeting released yesterday suggested that the Fed, while acknowledged that the economic outlook has improved, remained cautious about the downside risk. Moreover, policymakers stressed that uncertainty about growth and subdued inflationary pressure made the central bank decided to keep interest rate low at an extended period of time. More in FOMC Minutes: Policymakers Remained Cautious Although More Optimistic Than Before

New Zealand Q3 CPI rose 1.3% qoq, 1.7% yoy, much stronger than expectation of 0.8% qoq, 1.1% yoy. The report raised speculations that RBNZ would bring forward rate hikes to Q1 next year. Also, RBNZ already said earlier this week that it was removing some of the temporary emergency liquidity measures, including the Term Auction Facility and the regular weekly bill tender. More in Central Bank Watch: RBNZ to be the Next One to Tighten? Technically, NZD/USD's medium term rise from March's low of 0.4890 is still in progress and should be targeting 161.8% projection of 0.5486 to 0.6519 from 0.6193 at 0.7981 which is close to 0.8 psychological level. A break of channel support (now at 0.7018) is needed to be the first sign of topping. Otherwise, outlook will remain bullish.


Looking at the dollar index, intraday bias remains on the downside as long as 75.70 minor resistance holds. Next downside target is 74.31 resistance turned support (which is close to 100% projection of 78.93 to 75.83 from 77.47 at 74.37). Also note that development in major pairs like EUR/USD, USD/CHF, AUD/USD, USD/CAD and NZD/USD are opening up the case for the greenback to retest 2008 low against these currencies which could send the dollar index down to retest 70.7 low. In any case, a break of 77.47 resistance is needed to be the first sign of bottoming. Otherwise, outlook will remain bearish.


On the data front, Eurozone CPI is expected to be unchanged at -0.3% yoy in September. US SPI is expected to improve slightly to -1.4% yoy with core CPI unchanged at 1.4% yoy. Empire state manufacturing index and Philly Fed survey are expected to drop to 17.75 and 12 in October. Jobless claim is expected to be steady at 525k.

AUD/USD Daily Outlook

Daily Pivots: (S1) 0.9082; (P) 0.9120; (R1) 0.9186; More

AUD/USD's rally is still in progress and extends further to as high as 0.9227 so far. At this point, intraday bias remains on the upside and the current rally is still expected to continue towards 100% projection of 0.6284 to 0.8262 from 0.7702 at 0.9756 next. On the downside, below 0.9106 minor support will turn intraday outlook neutral first and bring consolidation. But short term outlook will remain bullish as long as 0.8857 resistance turned support holds.

In the bigger picture, the strong break of 0.9 psychological level indicates that AUD/USD is regaining upside momentum after drawing support from the medium term rising trend line a few times. As long as this trend line support holds, rise from 0.6284 is still in progress and could extend further to retest 08 high of 0.9849. On the downside, a break of 0.8567 support will have the trend line support firmly taken out and will in turn indicate that a medium term top is formed. In such case, deeper pull back could be seen to 0.7702/8262 support zone before resuming the up trend.


Economic Indicators Update

21:45NZDCPI Q/Q Q31.30%0.80%0.60% 
21:45NZDCPI Y/Y Q31.70%1.10%1.90% 
0:00AUDConsumer Inflation Expectation Oct3.50%--3.50% 
4:30JPYIndustrial Production M/M Aug F1.60%1.80%1.80% 
4:30JPYIndustrial Production Y/Y Aug F-19.00%-18.70%-18.70% 
5:00JPYBoJ Monthly Report ---- 
8:00EURECB Monthly Bulletin ---- 
9:00CHFZEW Expectations Oct --58 
9:00EUREurozone CPI M/M Sep 0.10%0.30% 
9:00EUREurozone CPI Y/Y Sep -0.30%-0.30% 
9:00EUREurozone CPI Core Y/Y Sep 1.20%1.30% 
12:30CADManufacturing Sales M/M Aug 0.40%5.50% 
12:30USDCPI M/M Sep 0.20%0.40% 
12:30USDCPI Y/Y Sep -1.40%-1.50% 
12:30USDCPI Core M/M Sep 0.10%0.10% 
12:30USDCPI Core Y/Y Sep 1.40%1.40% 
12:30USDInitial Jobless Claims 525K521K 
12:30USDEmpire Manufacturing Oct 17.7518.88 
14:00USDPhiladelphia Fed. Oct 1214.1 
14:30USDNatural Gas Storage 55B69B 
15:00USDCrude Oil Inventories 1.0M-1.0M