Today's USA CPI Will Change the Trajectory of the USD, But why?

The recent debate between Kamala Harris and Donald Trump was, in many ways, quite a spectacle. It’s interesting to see how these political events are starting to influence the market. Watching the debate, the market reaction was clear—the US dollar began to weaken. Many traders seem to be pricing in the possibility of a Kamala Harris victory. If Harris does win, we could see a further weakening of the dollar, as her policies, particularly on immigration and healthcare, appear to be raising concerns among market participants.

Within the first 10 to 15 minutes of the debate, there wasn't much volatility. But as Harris spoke more about key issues like immigration and healthcare, the market began to move, showing immediate depreciation in the US dollar. My take? While Trump held his ground in the debate, Harris might have had the upper hand, at least in the eyes of the market. And with the election just around the corner—on November 5th—it’s only a matter of time before we see how this plays out in the currency markets.

Now, let's pivot to the upcoming CPI release, which is scheduled for tonight at 10:30 PM Australian time. This is one of the most awaited reports, and for good reason. Traders and market participants are keen to see whether inflation will remain steady or start to shift. The consensus for the month-over-month CPI is 0.2%, showing no changes from the previous figure. The year-over-year figure is expected to drop slightly, from 2.9% to 2.5%.

When it comes to core CPI, the expectation is also for a 0.2% increase, mirroring the broader CPI figure. However, what’s interesting to note is that core CPI tends to rise slightly higher than the regular CPI, which strips out volatile items like food and energy.

From a broader perspective, I anticipate the US dollar to continue its depreciation. We've already seen bonds falling, gold prices rising, and the US dollar index dropping, signaling the market’s reaction in advance. All this volatility indicates that traders are already positioning themselves ahead of the CPI release, with many expecting a softer inflation number.

So, what’s the play here? If inflation comes in lower than expected, we could see further weakness in the dollar, which might present opportunities for those looking to trade major currency pairs. On the other hand, if the core CPI figure surprises to the upside, it could support a more hawkish stance from the Fed, which could prop up the dollar in the near term.

Keep an eye on these factors—they’re bound to influence market momentum in the days ahead.

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