A$ Finds Its Feet Below $0.90 as Iron Ore Posts Gain

• Aussie dollar breaks below $0.90 as local markets react to slowed Chinese industrial output;
• Sterling drifts lower ahead of fresh opinion polls and inflation data this evening;
• US industrial and manufacturing production falters in August paring Greenback gains.

Following the worst week of losses for the Australian dollar since November 2013, Chinese industrial production data released over the weekend weighed further on the Aussie dollar yesterday, breaking below $0.90 during the Asian session. Despite the Chinese numbers over the weekend, there is nothing new here for the Aussie dollar and recent losses appear attributable to playing catch up with a stronger US economy with the Federal Reserve poised to minimise the Australian dollar yield advantage in the near term. A jump in iron ore prices overnight and softer US data saw the Aussie gain some traction, the next test being the release of RBA minutes at 11:30 AEST this morning. With the Aussie dollar now trading close to 300 pips lower than this time last month, rhetoric surrounding currency strength from RBA minutes today will likely be ignored but neutral bias looks set to continue.

With little economic data to follow in the UK yesterday, Sterling continues to be pushed around by the Scottish referendum decision and speculation of the outcome. Data this evening is expected to show that consumer prices across the UK rose 1.5% (YoY) in August, however the implications on monetary policy will more likely stem from wage inflation data for release tomorrow when determining the pace at which consumer’s salaries are tracking inflation. Data will undoubtedly cause a jitter, however Sterling is poised for a bumpy ride and the looming Scottish vote and forthcoming opinion polls remain at the forefront of trading decisions.

Weakened industrial and manufacturing output from the US overnight put an end to recent Greenback strength, however the moderate pull back will likely present buying opportunities to those who may have ‘missed the boat’ ahead of Thursday’s FOMC meeting. Softer data is highly unlikely to influence policy makers at this week’s meeting and the bigger picture will be topic of conversation on Thursday. As always, language is key to the meeting and markets are looking for a change in forward guidance given the backdrop of improved economic data. San Francisco Fed research early last week highlighted concern that markets are underestimating the chance of a rate hike, raising expectations of more hawkish guidance on Thursday, investors just hope they’re not set up for a fall.