The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.By Marc Chandler NEW YORK ( BBH FX Strategy) -- Minutes from the recent Reserve Bank of Australia meeting meeting kept the door ajar to a rate cut next week, and Wednesday's CPI figures push the door wide open. Most notable in the CPI report was that the preferred trimmed mean measure rose only 0.3%, half as much as the consensus. That brings the year-over-year rate to 2.3% from 2.6%. Barring some major shock in the coming days, the Reserve Bank of Australia is poised to cut the cash rate 25 basis points to 4.5% next week. With the Reserve Bank of New Zealand on hold (decision expected later Wednesday) and the Bank of Canada on hold (though dovish), the Australian dollar is likely to underperform within the dollar bloc. Resistance for the Australian dollar-dollar currency pair is seen immediately near $1.0450 and then $1.05. A spike on news from Europe could see that latter level tested. Since Oct. 4, when the September foreign currency selloff ended, the Australian dollar has been the strongest G10 currency, gaining about 8.6% against the greenback, about 3.7% against the New Zealand dollar and about 4.4% against the Canadian dollar. There are three other noteworthy observations. First, the Australian dollar is highly correlated with the S&P 500 (0.85% on a 60-day rolling percent change basis). Although the risk-on and risk-off mantra may be an overused concept, the fact of the matter is that the high correlations between some major currencies and the stock market provide some evidence that there is something there now. This suggests that the general risk environment is an important driver for the Australian dollar and may mitigate or even negate some domestic and/or macroeconomic considerations. Second, iron-ore prices have collapsed, and this will affect sector profits and government revenue and therefore fiscal position for the worse, though steel producers in general may be a beneficiary. Iron-ore prices have dropped around 30% in the past eight weeks. China is seen to be the big driver of iron-ore prices. There is some talk of a move to shorter-term contracts, and this may inject extra volatility into the iron-ore market.
Third, U.S. money market funds have reduced their European exposure. This is well-known and appreciated. Less recognized is that the funds appear to have replaced European exposure with Australian bank paper. Their paper accounts for 9.4% of the U.S. money market assets at the end of September, according to the Fitch survey. U.S. money market exposure is only greater for U.S. domestic names and Canada. Australian banks reportedly secure almost half of their wholesale funding through long-term debt issuance offshore. About an eighth comes from short-term offshore funding.