Overnight Headlines

*US stocks post another record high on earnings optimism

*USD edges higher, best gains versus EUR and JPY

*Australia core inflation accelerates back inside RBA target

*Alphabet and Microsoft smash estimates, Robinhood disappoints

US equities extended their all-time highs on positive corporate earnings and data. A surprise rebound in US consumer confidence snapped a three-month slide. Strong US housing market figures also helped sentiment. Utilities and consumer staples led the way, not the cyclical sectors who have previously led indices to new highs. But sentiment is more negative this morning with Asian markets mostly lower. US futures are modestly in the green.

USD crept higher making its best gains against the euro and yen. DXY closed at 93.95. EUR traded down to an intraday low of 1.1585 but is back near 1.16. USD/JPY pushed up to 114.31 but trades back near 114. AUD leads the gains today as stronger inflation data moved already aggressively priced money markets.

Market Thoughts – Aussie Inflation lifts AUD

Once again, we’ve had stronger inflation numbers and the market pricing in interest rate hikes way ahead of the guidance of the central bank. The trimmed mean print out of Australia earlier today showed stronger price pressures than expected. It rose to 2.1% meaning it is back inside the RBA’s 2-3% target band, for the first time since the end of 2015.

The market now looks for the RBA to raise its policy rate three times before the end of next year. However, policymakers have maintained that 2024 is the earliest that they will be targeting any hikes. Money markets had already been “front running” a change of policy guidance to the hawkish side for the RBA. AUD is the strongest major on the session. We note that wage growth remains unimpressive, but more upside inflation readings will heap the pressure on the RBA.

Chart of the Day – USD/CAD eases back from oversold conditions

The Bank of Canada meets today and is expected to taper its bond buying for a fourth time from C$2bn to C$1bn. Focus will be on its forward guidance and language around potential rate hikes. Markets are fully pricing in an April rate move with a 75% chance of a March hike.

Any disappointment by the BoC and a more cautious stance will move USD/CAD higher. The major has broken out of a bear channel and recently pushed above the Fib level (61.8%) of the June/August move at 1.2366. Loonie sellers will target the midpoint of that move at 1.2477. This comes ahead of 1.25 and the 200-day SMA. A more hawkish BoC should see the pair move towards recent lows at 1.2288.