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23 Apr 2014
Australian Q1 CPI next: AUD/USD reaction
FXStreet (Bali) - Australia Q1 2014 CPI is next at 1.30 GMT, with a ‘headline’ outcome (QoQ) expected at +0.8%, 3.2% (YoY) although most of the attention will be paid to the ‘trimmed mean’, expected at 0.7%.
How the AUD may react?
The last quarterly CPI report saw inflation coming well above expectations, raising concerns that the RBA may have to abandon relatively soon even its neutral bias, and to start considering rate hikes (option still not prices until early 2015 though).
Many commentators have been attributing the cheap Aussie from late 2013 as the main contributor that imported inflation into the country. It is then worth noting that since the Aussie has been on an ongoing appreciation for most of this year, risks to higher-than-expected inflation readings may have diminished. However, the uncertainty remains, as the possible downward pressure to inflation from a higher Aussie may take some time to make its way through into the economy.
Another important factor to take into account is that the Australia Dollar has been the best performing in the past 24h since business in the FX market was back as usual, an indication not so much about expectations of yet again another high number as some talking heads may point at, but perhaps more driven by the smart money trying to get better prices to short into. Such assumption would hold true should the CPI come above the expected numbers yet the initial upside break turns out to be a head fake of 0.9390 up to 0.9425 and only serves for the smart money to build additional shorts. In contrast, if a high CPI readings sees follow through to the upside, with the rate breaking 0.9390 first and 0.9425 in the hours to come, it would be safer to think that buyers will take back control short term, at least for a retest of trend highs.
In case that inflation numbers come depressed or at least below what is expected, one should expect a small collapse of the Aussie, with the degree of its decline in line with the divergence against expected number. Should the CPI come below expectations, pay attention on the initial reaction, especially focusing o the ability from bears to make lower lows after the first wave to the downside. Regaining 0.9335/40 should be the first bear's missing followed by a retest of 0.9315 (sequence of lows early this week) ahead of 0.93 and 0.9270. If the CPI turns out to be weak, yet the initial fall is contained by key levels mentioned above, that could indicate that the market may not aim to be that short just yet.
Note just 15m after the Aus CPI release, another high risk event is scheduled (China HSBC PMI), with the result more than likely distorting the initial Aus CPI-led reaction. Once the dust settles, around 2 GMT, pay attention to what were the levels that buyers/sellers managed to regain as clues of sentiment for the next sessions to come.
How the AUD may react?
The last quarterly CPI report saw inflation coming well above expectations, raising concerns that the RBA may have to abandon relatively soon even its neutral bias, and to start considering rate hikes (option still not prices until early 2015 though).
Many commentators have been attributing the cheap Aussie from late 2013 as the main contributor that imported inflation into the country. It is then worth noting that since the Aussie has been on an ongoing appreciation for most of this year, risks to higher-than-expected inflation readings may have diminished. However, the uncertainty remains, as the possible downward pressure to inflation from a higher Aussie may take some time to make its way through into the economy.
Another important factor to take into account is that the Australia Dollar has been the best performing in the past 24h since business in the FX market was back as usual, an indication not so much about expectations of yet again another high number as some talking heads may point at, but perhaps more driven by the smart money trying to get better prices to short into. Such assumption would hold true should the CPI come above the expected numbers yet the initial upside break turns out to be a head fake of 0.9390 up to 0.9425 and only serves for the smart money to build additional shorts. In contrast, if a high CPI readings sees follow through to the upside, with the rate breaking 0.9390 first and 0.9425 in the hours to come, it would be safer to think that buyers will take back control short term, at least for a retest of trend highs.
In case that inflation numbers come depressed or at least below what is expected, one should expect a small collapse of the Aussie, with the degree of its decline in line with the divergence against expected number. Should the CPI come below expectations, pay attention on the initial reaction, especially focusing o the ability from bears to make lower lows after the first wave to the downside. Regaining 0.9335/40 should be the first bear's missing followed by a retest of 0.9315 (sequence of lows early this week) ahead of 0.93 and 0.9270. If the CPI turns out to be weak, yet the initial fall is contained by key levels mentioned above, that could indicate that the market may not aim to be that short just yet.
Note just 15m after the Aus CPI release, another high risk event is scheduled (China HSBC PMI), with the result more than likely distorting the initial Aus CPI-led reaction. Once the dust settles, around 2 GMT, pay attention to what were the levels that buyers/sellers managed to regain as clues of sentiment for the next sessions to come.