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Strong Headline & Core Australia CPI to Temper AUD/USD Losses

Strong Headline & Core Australia CPI to Temper AUD/USD Losses

2017-10-24 20:00:00
David Song, Strategist
Share:

- Australia Consumer Price Index (CPI) to Increase for Second Time in 2017.

- Core Rate of Inflation to Expand Annualized 2.0%- Fastest Pace of Growth Since 4Q 2015.

- Sign Up & Join DailyFX Currency Analyst David Song to Discuss Key FX Themes & Potential Trade Setups.

Trading the News: Australia Consumer Price Index (CPI)

Australia CPI

A rebound in both the headline and core Consumer Price Index (CPI) may spark a bullish reaction in the Australian dollar as puts pressure on the Reserve Bank of Australia (RBA) to lift the cash rate from the record-low.

Signs of heightening price pressures may push the RBA to change its tune ahead of 2018, and Governor Philip Lowe and Co. may start to prepare Australian households and businesses for higher borrowing-costs as ‘recent data continued to indicate that the drag on growth from the end of the mining investment boom was nearing completion.’ In turn, budding expectations for an RBA rate-hike should heighten the appeal of the Australian dollar, but another batch of below-forecast prints may fuel the recent decline in AUD/USD as it drags on interest-rate expectations.

Impact that Australia’s CPI report has had on AUD/USD during the previous release

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

2Q

2017

07/26/2017 01:30:00 GMT

2.2%

1.9%

+7

+97

2Q 2017 Australia Consumer Price Index (CPI)

AUD/USD 15-Minute Chart

AUD/USD Chart

Check out our AUD/USD quarterly projections in our FREE DailyFX Trading Forecasts

Australia’s Consumer Price Index (CPI) unexpectedly slowed to an annualized 1.9% from 2.1% during the first three-months of 2017, while the core rate of inflation held steady at 1.8% per annum amid a downward revision in the prior reading. A deeper look at the report showed most components slowing or holding steady in the three-months through June, while Transportation costs bucked the trend, with the figure increasing 0.4% in the first-quarter versus a 0.3% expansion during the previous period. Nevertheless, the market reaction was short-lived, with AUD/USD regaining its footing during the European trade to end the day at 0.8004.

How To Trade This Event Risk(Video)

Bullish AUD Trade: Headline & Core CPI Picks Up

  • Need a green, five-minute candle following the report to consider a long AUD/USD trade.
  • If the market reaction favors a bullish aussie position, 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: Australia Inflation Report Continues to Disappoint

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

Potential Price Targets For The Release

AUD/USD Daily Chart

Strong Headline & Core Australia CPI to Temper AUD/USD Losses

Chart - Created Using Trading View

  • AUD/USD appears to be on its way to test the monthly-low (0.7733) as it carves a fresh series of lower highs & lows after failing to test the Fibonacci overlap around 0.7930 (50% retracement) to 0.7940 (50% retracement).
  • Keep in mind, the Relative Strength Index (RSI) managed to clear the bearish formation from September, but remains confined by the downward trend carried over from the summer months.
  • With that said, AUD/USD may continue to test the former-resistance zone around 0.7720 (23.6% retracement) to 0.7770 (61.8% expansion) for support, with the pair at risk for further losses as long as price & the RSI highlight the bearish dynamic from earlier this year.
  • 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/USD Retail Sentiment

AUD/USD Retail Sentiment

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

Retail trader data shows 51.9% of traders are net-long AUD/USD with the ratio of traders long to short at 1.08 to 1. The number of traders net-long is 5.4% higher than yesterday and 0.4% higher from last week, while the number of traders net-short is 5.9% lower than yesterday and 3.9% lower 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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