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AUD/USD Range Resistance at Risk on Sticky Australia Core CPI

AUD/USD Range Resistance at Risk on Sticky Australia Core CPI

David Song, Shuyang Ren,

- Australia Consumer Price Index (CPI) to Narrow to Annualized 1.3%- Lowest Since 2Q 2012..

- Core Rate of Inflation to Hold Steady at Annualized 2.2% for Second Consecutive Quarter.

For more updates, sign up for David's e-mail distribution list.

Trading the News: Australia Consumer Price Index (CPI)

Despite forecasts for a slowdown in Australia’s Consumer Price Index (CPI), the stickiness in the core rate of inflation may spur a bullish reaction in AUD/USD as it dampens bets for lower borrowing-costs in the $1T economy.

What’s Expected:

AUD/USD CPI

Click Here for the DailyFX Calendar

Why Is This Event Important:

Even though the Reserve Bank of Australia (RBA) keeps the door open to further reduce the cash rate, Governor Glenn Stevens may largely carry the wait-and-see approach into the second-half of 2015 as record-low rates paired with the depreciation in the aussie helps to encourage an improved outlook for growth and inflation.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

Employment Change (MAR)

15.0K

37.7K

NAB Business Confidence (MAR)

--

3

Retail Sales (MoM) (FEB)

0.4%

0.7%

The pickup in business confidence paired with the expansion in private-sector consumption may encourage stronger price growth in Australia, and a positive development may heighten the appeal of the Australian dollar as market participants scale back bets for another RBA rate cut.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Commodity Index (YoY) (MAR)

--

-19.7%

Trade Balance (JAN)

-925M

-980M

Gross Domestic Product s.a. (QoQ) (4Q)

0.6%

0.5%

However, the rebalancing of the real economy may continue to drag on inflation amid the ongoing adjustments in the terms of trade, and the RBA may have little choice but to further embark on its easing cycle in an effort to stem the downside risks surrounding the region.

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How To Trade This Event Risk(Video)

Bullish AUD Trade: Headline & Core CPI Highlight Sticky Price Growth

  • Need to see green, five-minute candle following the print to consider a long trade on AUD/USD.
  • If market reaction favors a bullish aussie trade, buy AUD/USD with two separate position.
  • Set stop at the near-by swing low/reasonable distance from entry; look for at least 1:1 risk-to-reward.
  • Move stop to entry on remaining position once initial target is hit; set reasonable limit.

Bearish AUD Trade: Australia Price Growth Falls Short of Market Expectations

  • Need red, five-minute candle to favor a short AUD/USD trade.
  • Implement same setup as the bullish aussie trade, just in reverse.

Potential Price Targets For The Release

AUD/USD Daily Chart

AUD/USD Range Resistance at Risk on Sticky Australia Core CPI

Chart - Created Using FXCM Marketscope 2.0

  • Long-term outlook for AUD/USD remains bearish, but easing bets for a RBA rate cut at the May 5 meeting may continue to produce range-bound prices in the exchange rate.
  • DailyFX Speculative Sentiment Index (SSI) shows the retail crowd remains net-short AUD/USD going into the CPI print, with the ratio currently holding at -1.20.
  • Interim Resistance: 0.7820 (38.2% retracement) to 0.7860 (61.8% expansion)
  • Interim Support: 0.7570 (50% expansion) to 0.7590 (100% expansion)

Read More:

The Weekly Volume Report: Dollar Trying To Turn?

COT-Mexican Peso Large Speculators Flip to Long Position

Impact that the Australia CPI report has had on AUD/USD during the last release

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

4Q

2014

01/28/2015

00:30 GMT

1.8%

1.7%

+80

+92

4Q 2014 Australia Consumer Price Index

AUD/USD Chart

Australia’s Consumer Price Index (CPI) slowed to an annualized rate of 1.7% from 2.3% in the third-quarter of 2014. At the same time, the core inflation rose more-than-expected as the trimmed mean climbed 0.7% during the three-months through December, while the annualized rate cooled to 2.2% from a revised 2.4%. Easing inflation on the back of falling commodity prices may raise the Reserve Bank of Australia’s (RBA) scope to further embark on its easing cycle, and the central bank may continue to endorse a dovish outlook for monetary policy in an effort to further assist the rebalancing of the real economy. The Australia dollar strengthened following the sticky inflation prints, with AUD/USD surging above the 0.7975 region and closing the Asian Pacific session at 0.7995.

--- Written by David Song, Currency Analyst and Shuyang Ren

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

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