Dollar Selloff Pauses Ahead of PPI Test – Action Forex

Dollar sellers paused, with the greenback holding just above recent lows as traders took profits ahead of two crucial U.S. inflation reports. Momentum stalled as markets awaited fresh catalysts in the form of PPI today and CPI on Thursday. Any signs of hotter-than-expected price growth may revive fears of stagflation, complicating the Fed’s task as it weighs cutting rates to stabilize the weakening labor market. On the other hand, if tariffs prove less inflationary than feared, bets on faster easing would quickly intensify.

Fed independence remains a parallel concern after a federal judge blocked US President Donald Trump’s attempt to remove Governor Lisa Cook. The ruling held that the law’s “for cause” provision cannot be used to remove a governor for pre-office conduct. The case, expected to reach the Supreme Court, could set a major precedent on the limits of presidential authority.

Cook has denied any wrongdoing in relation to Trump’s allegations of mortgage fraud. Judge Jia Cobb stressed that the public interest lies in protecting the Fed’s independence, a principle markets view as crucial for maintaining credibility in tackling inflation.

On the trade front, Trump asked the EU to impose tariffs of up to 100% on China and India over their Russian oil purchases, pledging that Washington would mirror any such measures. The U.S. already lifted tariffs on Indian imports to as high as 50%, prompting protests from New Delhi. China, the biggest buyer of Russian oil, has so far been spared after agreeing to a tariff truce with Washington.

Meanwhile in Europe, French President Emmanuel Macron appointed loyalist Sebastien Lecornu as Prime Minister, signaling continuity on his pro-business reform agenda. Lecornu, 39, will lead another minority government, tasked with finding compromises across parliament as France grapples with debt concerns and political fatigue.

For the week so far, Loonie is the weakest performer, with Euro and Yen not far behind. On the stronger side, Kiwi leads, followed by Aussie and Sterling, reflecting a modest risk-on backdrop. Dollar and Swiss Franc sit in the middle.

In Asia, Nikkei rose 0.84%. Hong Kong HSI is up 1.29%. China Shanghai SSE is up 0.34%. Singapore Strait Times rose 1.07%. Japan 10-year JGB yield rose 0.002 to 1.567. Overnight, DOW rose 0.43%. S&P 500 rose 0.27%. NASDAQ rose 0.37%. 10-year yield rose 0.028 to 4.074.

China CPI falls -0.4% yoy, core inflation hits 2-1/2 year high

China’s consumer prices slipped deeper into deflation in August, with CPI down -0.4% yoy after July’s flat reading, worse than expectations of -0.2% yoy and the weakest in six months. Food prices were the main drag, falling -4.3% yoy versus -1.6% yoy previously. On a monthly basis, CPI was unchanged, undershooting forecasts for a small 0.1% mom rise.

At the same time, core inflation showed signs of life, rising 0.9% yoy in August compared with 0.8% yoy in July — the fastest pace in two and a half years. The pickup suggests underlying demand in services and other non-food sectors is holding up better than headline numbers imply, even as consumers face falling food costs.

Producer prices continued to contract, though at a slower pace. PPI dropped -2.9% yoy, in line with expectations and an improvement from -3.6% yoy in July. The figures highlight China’s ongoing struggle with persistent factory-gate deflation, which has now lasted nearly three years.

AUD/USD Daily Report

Daily Pivots: (S1) 0.6570; (P) 0.6595; (R1) 0.6610; More...

AUD/USD retreated ahead of 0.6624 resistance and intraday bias is turned neutral first. Some consolidations could be seen but further rally is expected as long as 0.6559 resistance turned support holds. On the upside, firm break of 0.6624 will resume larger rally from 0.5913 to 0.6713 fibonacci level. However, sustained break of 0.6559 will turn bias to the downside and extend the corrective pattern from 0.6624 with another falling leg.

In the bigger picture, there is no clear sign that down trend from 0.8006 (2021 high) has completed. Rebound from 0.5913 is seen as a corrective move. While stronger rally cannot be ruled out, outlook will remain bearish as long as 38.2% retracement of 0.8006 to 0.5913 at 0.6713 holds. Nevertheless, considering bullish convergence condition in W MACD, even in case of another fall through 0.5913, downside should be contained above 0.5506 (2020 low).