Australian CPI data released earlier showed a surprise increase from 3.6% to 4.0%, leading to a stronger Australian Dollar as rate cuts now become less likely.

1. The earlier release of Australian CPI (inflation) data today was expected to show an increase in the annualized rate from 3.6% to 3.8%, but it in fact rose to 4.0%, giving the market a hawkish surprise. This data sent the Australian Dollar sharply higher to a new 2-week high above $0.6681. The hawkish surprise may have had greater impact because yesterday’s release of Canadian CPI data also showed higher than expected CPI, with a monthly increase of 0.6% when only 0.3% was expected there.
2. The Japanese Yen remains weak, with the benchmark USD/JPY currency pair consolidating not far from the big round number at ¥160. There may have been some covert intervention by the Bank of Japan Monday which briefly pushed down the price, only to see it rebound immediately. Japan seems to be defending the ¥160 area, but the market tends to feel that the decline in the Yen has further to go, possibly even to a near 40-year high at ¥170. Trend traders will still want to be long of this currency pair, although intervention by the Bank could send the price sharply lower in a matter of minutes.
3. US stock markets rebounded yesterday. However, major Asian indices are mixed.
4. WTI Crude Oil is consolidating, halting its previous advance, partly driven by the news that US stockpiles are increasing, easing supply worries.
5. In the Forex market, the Australian Dollar is by far the strongest major currency since the Tokyo open, while the Swiss Franc is the weakest.

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