Weaker than expected US economic data weighed on US markets overnight, with the Consumer Confidence index falling to 47.7 in October from a revised 53.4 in September. With the market consensus a rise to 53.5, risk aversion once again becomes the catalyst for a stronger greenback. In the minutes after the release, the US dollar rallied against major counterparts, setting the tone for the remainder of US trading, with the Euro falling back through US$1.5000 and currently trading two big figures lower at US$1.4800. True to form Gold dropped as dollar strength prevailed, falling to lows of US$1032.50 an ounce overnight before fighting back to current levels of US$1040 an ounce. The Aussie followed a similar pattern, dropping to lows of US$.9121 before staging a comeback ahead of key data this morning. At the time of writing the Aussie dollar is buying US$.9168.
All eyes on Consumer Price Index this morning, which is expected to grow 0.9 percent in the third quarter, representing an on year inflation rate of 1.2 percent. With the Reserve Bank interest rate decision due on cup day, this key data could well prove to tip the scales on the interest rate debate.
The premise of a string of interest rate hikes has buoyed the Aussie dollar in recent weeks with the market factoring in consecutive rate hikes. A hawkish view of the local economic outlook by RBA officials in recent statements paints a very clear picture of interest rates forward. The finger's on the trigger, the question is how big is the bullet? Although a market majority predicts a rise of 25 bpts, a case is building for a greater rise, with a growing number of economists swaying to a 50 bpts rise at the next meeting.