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Strong Australia Consumer Price Index (CPI) to Fuel AUD/USD Rebound

Strong Australia Consumer Price Index (CPI) to Fuel AUD/USD Rebound

David Song, Strategist

Trading the News: Australia Consumer Price Index (CPI)

Updates to Australia’s Consumer Price Index (CPI) may fuel the recent rebound in AUD/USD as the headline reading for inflation is projected to increase to 2.2% from 1.9% per annum in the first-quarter of 2018.

Image of DailyFX economic calendar

The Australian dollar may exhibit a more bullish behavior over the remainder of the month should the data prints put pressure on the Reserve Bank of Australia (RBA) to alter the forward guidance for monetary policy, and the central bank may start to change its tune in the second-half of the year as inflation approaches the central bank’s target of 2-3%.

In turn, Governor Philip Lowe & Co. may prepare Australian households and businesses for higher borrowing-costs at the next meeting on August 7, but another below-forecast CPI print may drag on the Australian dollar as it encourages the RBA to keep the official cash rate (OCR) at the record-low throughout 2018. Sign up and join DailyFX Junior Currency Analyst Daniel Dubrovsky LIVE to cover the updates to Australia’s inflation report.

Impact that Australia CPI has had on AUD/USD during the previous print

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

1Q

2018

04/24/2018 01:30:00 GMT

2.0%

1.9%

+20

+13

1Q 2018 Australia Consumer Price Index (CPI)

AUD/USD 10-Minute Chart

Image of AUDUSD 5-Minute chart

Australia’s Consumer Price Index (CPI) held steady a 1.9% for the second straight quarter, while the core rate of inflation unexpectedly climbed to 1.9% from 1.8% in the fourth quarter of 2017. With price growth still holding below the Reserve Bank of Australia’s (RBA) inflation target of 2-3%, signs of subdued price growth may encourage the central bank to retain the record-low cash rate throughout 2018 as ‘inflation is low and is likely to remain so for some time, reflecting low growth in labour costs and strong competition in retailing.

The initial dip in the Australian dollar was short-lived, with AUD/USD climbing back above the 0.7600 handle to end the day at 0.7603. Learn more with the DailyFX Advanced Guide for Trading the News.

AUD/USD Daily Chart

Image of AUDUSD daily chart
  • Keep in mind, the broader outlook for AUD/USD remains tilted to the downside as both price and the Relative Strength Index (RSI) track the bearish formations from earlier this year, but recent price action raises the risk for range-bound conditions as the monthly opening range still remains intact, with the exchange rate capped by the Fibonacci overlap around 0.7500 (50% retracement) to 0.7530 (38.2% expansion).
  • Need a close below the 0.7320 (50% expansion) to 0.7340 (61.8% retracement) region to open up the next downside hurdle around 0.7230 (61.8% expansion) with the next area of interest coming in around 0.7150 (161.8% expansion) to 0.7180 (61.8% retracement).

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--- Written by David Song, Currency Analyst

Follow me on Twitter at @DavidJSong.

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

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