US CPI was weaker than expected, making a pair of data points that do not support a rising dollar.
Consumer level inflation weaker than expected
While it is good news for consumers, weaker than expected CPI in the US has got the dollar moving higher. The data, 0.2% for the month of April and 2.5% over the last 12 months, lessens the need for future FOMC interest rate hikes. Put with the PPI figures released Wednesday, the combined picture is one in which producer level and consumer inflation are still rising, but the pace of increase is decelerating.
The biggest contribution to consumer level inflation was gasoline. The gasoline index rose by 3.0% in the month and offset declines in the costs of other types of fuels. The energy index rose 1.4%. On an ex-food and energy core, basis inflation rose at the rate of 2.1%, also below expectations.
The caveat is that the YOY figure, and the headline YOY figure, are both trending higher. Over the past year headline and core YOY increases have risen by nearly a full percent and are both now above the Fed’s 2% target. While the data does not support the idea of more hikes than are currently priced into the market, it certainly supports the idea the FOMC will hike rates in June, and at least one more time this year.
The dollar weakened on the news as traders had been expecting to see inflation accelerate. The
EUR/USD created a strong green candle on the news, moving up from Wednesday’s close to test resistance near 1.9500. The indicators remain weak and in bear territory but both are consistent with a shift in momentum. The stochastic is firing a bullish crossover already, an indication of rising prices, and MACD is not far behind. A move above 1.9500 will be bullish and could take the pair up to 1.200 in the near term. Next week look out for a raft of inflation data from the EU.
The USD/INR fell in today’s session as weak US inflation deflated demand for the dollar. The pair formed a Dark Cloud Cover confirming yesterday’s candle (long upper shadow, very Shooting Star-like), and looks like it has halted its upward march. The indicators confirm the move, both diverging from the high and forming bearish crossovers high in the upper range. The first target for support is near 67.00, a move below there could go to 66.50.
The greenback fell hard versus the Canadian dollar. The loonie is gaining strength on positive Canadian data and outlook for NAFTA as well as weakness in the USD. The pair formed the second of two long red candles with today’s action and is now below the short term moving average. A close below this level on a daily basis will be bearish and could take the pair as low as 1.2700 or 1.2600 in the near term. The indicators are both confirming the move with bearish crossovers so I would expect to see at least a test of 1.2700. Friday’s data will be dominated by Canadian employment figures to be released in the early AM.