Bell FX Currency Outlook: The Australian Dollar remains above USD 0.8800 after inflation figures came in stronger than expected, making another cash rate cut highly unlikely.

Australia: The AUD has retreated somewhat after yesterday's surge and is trading at USD 0.8850. Yesterday's Australian inflation data could potentially challenge the view inflation pressures are moderate in Australia.

Underlying inflation picked up sharply in Q4, with trimmed mean and weighted median inflation at 0.8% for the quarter which provided an annual rate of 2.7%. The six-month annualised pace of underlying inflation increased to above 3%, suggesting a clear pick-up in momentum (but
keep in mind there is always the chance this CPI release maybe somewhat unreliable in time).

At first glance, yesterday's figures do question our previous assumption the inflation outlook is firmly off the RBA's radar. If the numbers are a true reflection of inflation, rate cuts now look extremely unlikely, especially given the lower currency and gathering momentum in some areas of the economy, in particular, housing and retail spending.

The market's view remains the RBA is on hold until early 2015 when it expects a gradual tightening cycle to begin. Soft labour market conditions and uncertainty surrounding how the expected sharp falls in mining investment this year will play out continue to suggest that policy tightening is some way off.

Today in Australia, the Melbourne Institute Consumer Inflation Expectations survey for January is released. The January Survey was conducted prior to yesterday's CPI release, but recent surveys have shown little inflation fears for the next 12 months. The December survey reported a median price rise of 2.1% for the next year, and while today's report may be similarly subdued, a jolt higher is likely in February after yesterday's CPI result. We expect the AUD to hold yesterday's gain today ahead of the approaching Australia Day long weekend.

Majors: In currency markets, the USD once again made small gains against the EUR and JPY as news flow remained light. Elsewhere, domestic factors were at the forefront. In the UK, better than expected employment numbers drove the GBP higher despite the Bank of England minutes revealing that they would look more broadly than their unemployment target when deciding to raise rates, while in Canada, a dovish statement from the Bank of Canada highlighting their preference for further currency weakness gave them just that.

In Asia today the China Flash PMI will be the primary focus before the European session where we will get a broader gauge on how global production has begun 2014.
Economic Calendar
23 JAN NZ ANZ Job Advertisements MoM
AU Consumer Inflation Expectation
US Initial Jobless Claims
EC PMI Manufacturing/Services

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