Subdued inflation data in conjunction with slower growth expectations have once again given rise to hopes of near-term U.S stimulus. Headline inflation was flat in July against expectations of a moderate increase of 0.2 percent, representing annual growth of 1.4 percent. Core prices rose 0.1 percent, or 2.1 percent in yearly terms from 2.2 percent in June.

Overall, economic data was mixed with the New York Empire manufacturing index recording a surprise drop to -5.85 in August, against expectations of 7. Industrial production increased 0.6 percent in July from downwardly revised 0.1 percent in June. Although thin market liquidity acted to exacerbate moves in light of the European holiday period, immediate and decisive weakness from the greenback suggests markets have little in the way of conviction over the Fed's next move. It's clear markets are consumed with central bank easing expectations from both sides of the Atlantic and every data pulse has investors crossing the veritable minefield in a attempt to preempt central banks. This was demonstrated in the ensuing period of Tuesday's outperforming retail sales data, which prompted a material shift in stimulus expectations with lower expectancy inducing a solid greenback rebound. This was swiftly unwound overnight, with high beta currencies such as the Aussie and kiwi regaining composure after a 24-hour period on the back foot. The exception was the Euro which retraced recent gains falling below $US1.23-figure to lows of $US1.2263.

Rumours of sovereign flows kept the Canadian dollar in good stead which outperformed its commodity bloc counterparts and led the charge higher against the Euro. Efforts by the Swiss Nation Bank to protect the SFr1.20 peg to the Euro, have seen vast amounts of euro denominated reserves accumulated. In order to mitigate this risk, the SNB will then exchange their mountain of Euro's for other currencies, with the Canadian dollar alongside the Aussie and Nordic currencies believed to be the primary beneficiaries.

After making a notable increase after the U.S CPI data, the Aussie dollar was to remain supported around 105 US cents for the rest of the session, trading in a tight 10-15 pip range. Local economic releases today include consumer inflation expectations, average weekly wages, and RBA FX transaction.

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