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Rising Australia Consumer Price Index (CPI) to Buoy AUD/USD Outlook

Rising Australia Consumer Price Index (CPI) to Buoy AUD/USD Outlook

2017-07-25 19:30:00
David Song, Strategist
Share:

- Australia Consumer Price Index (CPI) to Expand Annualized 2.2%- Highest Reading Since 2014.

- Core Rate of Inflation to Slow from Fastest Pace of Growth Since 2015.

- Sign Up and Join DailyFX Strategist Ilya Spivak LIVE to Cover Australia’s CPI Report.

Trading the News: Australia Consumer Price Index (CPI)

Australia CPI

A fourth consecutive increase in Australia’s Consumer Price Index (CPI) may spark a bullish reaction in AUD/USD as it puts pressure on the Reserve Bank of Australia (RBA) to lift the cash rate off of the record-low.

Why Is This Event Important:

The RBA may continue to change its tune as central bank officials forecast ‘a neutral nominal cash rate of around 3½ per cent,’ and Governor Philip Lowe and Co. may start to prepare Australian households and business for higher borrowing-costs as ‘the data available for the June quarter had generally been positive.’ However, another series of mixed data prints may drag on the Australian dollar as it encourages the RBA to preserve the current policy throughout 2017.

Impact 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)

1Q

2017

04/26/2017 01:30:00 GMT

2.2%

2.1%

-31

-71

1Q 2017 Australia Consumer Price Index (CPI)

AUD/USD 10-Minute Chart

AUD/USD Chart

DailyFX 3Q Forecasts Are Now Available

Australia’s Consumer Price Index (CPI) climbed an annualized 2.1% after expanding 1.5% during the last three-months of 2016, while the core rate of inflation increased 1.9% during the same period amid forecasts for a 1.8% print. Signs of slower-than-expected inflation may encourage the Reserve Bank of Australia (RBA) to preserve the record-low cash rate for the foreseeable future as ‘indicators of household consumption had been a little weaker than expected, which was consistent with softer conditions in the labour market.’ Despite the stickiness in the core rate, the Australian dollar lost ground following the CPI report, with AUD/USD slipping below the 0.7500 handle to end the day at 0.7472.

How To Trade This Event Risk(Video)

Bullish AUD Trade: Australia 2Q CPI Climbs Annualized 2.2% or Greater

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

Bearish AUD Trade: Headline & Core Inflation Disappoint

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

Potential Price Targets For The Release

AUD/USD Daily

AUD/USD Daily Chart

Chart - Created Using Trading View

  • Broader outlook for AUD/USD has perked up as it breaks out of the downward trend from 2016, with the pair at risk of extending the advance from earlier this month as the Relative Strength Index (RSI) sits in overbought territory for the first time since 2014.
  • Topside targets remain on the radar as long as the RSI holds above 70, with the next topside hurdle coming in around 0.8020 (38.2% expansion) followed by the 0.8150 (100% expansion) zone, which sits just below the May 2015-high (0.8163).
  • Interim Resistance: 0.8270 (38.2% retracement) to 0.8295 (2015-high)
  • Interim Support: 0.7720 (23.6% retracement) to 0.7740 (78.6% expansion)
AUD Sentiment

Track Retail Sentiment with the New Gauge Developed by DailyFX Based on Trader Positioning

Retail trader data shows 25.8% of traders are net-long AUD/USD with the ratio of traders short to long at 2.88 to 1. In fact, traders have remained net-short since June 04 when AUD/USD traded near 0.74387; price has moved 6.8% higher since then. The number of traders net-long is 7.3% lower than yesterday and 4.6% lower from last week, while the number of traders net-short is 1.2% lower than yesterday and 2.1% higher from last week.

--- Written by David Song, Currency Analyst

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

To be added to David's e-mail distribution list, please follow this link.

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

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