Global equities were a sea of green, with the dollar gaining thanks to a weaker euro following rampant speculation the ECB is done with hikes.
Chart: AUDUSD
More evidence of strong consumer demand came out on Thursday, with Advance Retail Sales well above consensus at 0.6% for August, ahead of the 0.1% expected, scoring a fifth consecutive month of growth. August PPI jumped 0.7% compared to 0.4% expected, affirming concerns that inflation remains active, with US yields moving higher and propelling the dollar index to a 6-month high. As a result, cable fell 0.67% to a June low of $1.24, leaving behind resistance at $1.2490 and marching towards $1.232 next.
The ECB raised interest rates a quarter of a point, catching markets off-guard after a near-even split of forecasts for a hold or a rate hike. The accompanying statement said that the ECB considers it has reached a level that, if maintained for a sufficiently long time, will contribute to inflation returning to target. While not explicitly ruling out further hikes, the language was interpreted as a signal that tightening will not continue. At the same time, ECB staff projections cut the GDP growth outlook for this and the next year, adding to the bearish rhetoric. The eurodollar rate reached a May low of $1.0633, opening the door to $1.0584 as long as the price remains under $1.0687.
The EU’s foreign policy chief, Josep Borrell, disclosed a letter from France, the UK and Germany insisting on maintaining sanctions on Iran. White House official Amos Hochstein confirmed that the government would continue replenishing the SPR, hinting that the $70/bbl price threshold remained intact. Combined with stronger consumer demand data in the US, WTI broke $90/bbl, a fresh 10-month high, after rising 2.15% Thursday. If bulls can sustain $89.60 a barrel, the upside move may continue towards $92/bbl.
August, China’s Industrial production increased by 4.5%, above the 3.9% forecast. Retail sales were also particularly positive, growing at 4.6% above the 3.0% forecast. China’s surveyed jobless rate decreased to 5.2% from 5.3% prior. The Aussie was among the best gainers in response to the strong data dump from China, up 0.45% to 0.6468 at the time of writing early Friday. 0.6450 is critical support for bullish price action, as it can open up 0.65 or 0.6420.