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Australian PPI Higher than Expected; AUD Moderately Stronger

Australian PPI Higher than Expected; AUD Moderately Stronger

2011-04-21 02:19:00
David Liu, Technical Strategist
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Higher Australian Producer Price Index for the first quarter helped buoy the Australian dollar higher against most currency pairs, including the US dollar. Better than expected data indicated growing producer prices, further adding investor expectations of a RBA Target Cash Rate increase. The following is a digest of Australian data released earlier today, including higher foreign exchange transactions and a higher business confidence.

GMT

Event

Actual

Expected

Previous

1:30

Producer Price Index (QoQ) (1Q)

1.20%

1.00%

0.10%

1:30

Producer Price Index (YoY) (1Q)

2.90%

2.70%

2.70%

1:30

RBA Foreign Exchange Transaction (AUD) (MAR)

699M

-

414M

1:30

NAB Business Confidence (1Q)

11

-

5

Higher producer price index for finished goods represents a higher average selling price that producers receive for their finished goods, an indicator at the same level of importance as the Consumer Price Index. The higher PPI, especially the QoQ difference, could prompt an increase of interest rates in the future. However, the RBA has consistently reiterated a wait-and-see approach with increasing its target cash rate, Australia’s benchmark rate, capping further strength for the Aussie dollar. RBA Governor Glenn Stevens has also indicated that the stronger dollar has also had the effect of slowing down parts of the economy and tempering inflation.

Australian_PPI_Higher_than_Expected_1_body_Picture_5.png, Australian PPI Higher than Expected; AUD Moderately Stronger

Chart generated with Bloomberg Profession L.P.

Even with the record strength of the Australian dollar having a profound negative effect on exports of Australian goods and services, manufacturing and tourism, the possibility of an intervention similar to what happened in Japan remains small. Foreign Minister and former Prime Minister Kevin Rudd said in an interview today that Australia won’t “manipulate” its currency, and countries that do choose intervention will “pay a price.” Furthermore, Australia has refused to limit capital inflows to stem demand on its currency.

The AUDUSD was volatile before the data release, hovering at its record between 1.07350 and 1.07400, although it reached its then-high of 1.07475 immediately after the report. At the time of writing, the AUDUSD was near its all time high of 1.07500.

Australian_PPI_Higher_than_Expected_1_body_Picture_4.png, Australian PPI Higher than Expected; AUD Moderately Stronger

Chart generated with FXCM Strategy Trader

Written by David Liu, DailyFX Research

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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