Daily Morning Report 09.12.2015

The Australian dollar gained further on Wednesday as slightly higher consumer inflation than expected stoked demand.

In China, CPI rose 1.5% year-on-year, a tick higher than the 1.4% seen and PPI fell 5.9%, matching expectations. Australia relies on exports to China across a wide basket of commodities.

The higher consumer inflation will no doubt limit the room for the People’s Bank of China to further cut interest rates. The PBOC last cut the benchmark one-year deposit rate to 1.5% at the end of October.

In Australia, the Westpac consumer sentiment dipped 0.8% for December, down from 3.9% in the previous month. Also in Australia home loans for October fell 0.5%, less than expected and housing finance slumped 6.1% for the same month.

Earlier in Japan, core machinery orders for October year-on-year jumped 10.3%, far outpacing the gain of 1.4% seen with the month-on-month pace up 10.7%, well above the expected 1.5% drop.

Japan’s Cabinet Office has forecast that core orders will rise 2.9% on quarter in October-December after slumping 10.0% in the third quarter and rising 2.9% in the second quarter. The increase is expected to be led by electronic communications equipment, industrial machinery, and rail cars.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, rose 0.09% to 98.51.

Overnight, the dollar remained moderately lower against the other major currencies on Tuesday, but it remained supported by growing expectations for a rate hike by the Federal Reserve next week.

The dollar remained broadly supported after Friday’s strong U.S. employment data fuelled further expectations that the Federal Reserve will hike interest rates for the first time since 2006 at its upcoming meeting on December 15-16.

Separately, market sentiment weakened after data on Tuesday showing that Chinese exports fell for the fifth consecutive month added to fears over a slowdown in the world’s second-largest economy.

Exports fell 6.8% on a year-over-year basis in November as weak global demand continued to weigh. Imports were also down, falling 8.7%.