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Slowing Australia CPI to Keep AUDUSD Rate Under Pressure

Slowing Australia CPI to Keep AUDUSD Rate Under Pressure

David Song, Strategist

Trading the News: Australia Consumer Price Index (CPI)

Updates to Australia’s Consumer Price Index (CPI) may fuel the recent decline in the AUD/USD exchange rate as the headline reading for inflation is expected to narrow to 1.5% from 1.8% per annum in the fourth-quarter of 2018.

Image of DailyFX economic calendar

Signs of slowing price growth may spur a bearish reaction in the Australian dollar as it puts pressure on the Reserve Bank of Australia (RBA) to further insulate the economy, and the central bank may adopt a more dovish tone over the coming months as ‘growth in household consumption is being affected by theprotracted period of weakness in real household disposable income and the adjustment in housing markets.

In turn, a print of 1.5% or lower may drag on AUD/USD as it encourages Governor Philip Lowe & Co. to adjust the forward-guidance for monetary policy, but an above-forecast CPI reading may curb the recent weakness in the Australian dollar as it dampens bets for an RBA rate-cut. Sign up and join DailyFX Currency Analyst David Song LIVE for an opportunity to discuss potential trade setups.

Impact that the Australia CPI report 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)

4Q

2018

01/30/2019 00:30:00 GMT

1.7%

1.8%

+27

+95

4Q 2018 Australia Consumer Price Index (CPI)

AUD/USD 10-Minute Chart

Image of audusd 10-minute chart

Australia’s Consumer Price Index (CPI) narrowed less-than-expected during the last three-months of 2018, with the index slipping to 1.8% per annum from 1.9% per annum in the third-quarter, while the core rate of inflation held steady at 1.8% for the seventh consecutive quarter. A deeper look at the report showed 12 of 15 components reflecting a slowdown year-over-year, with the gauge for tradeable goods slipping to 0.6% from 1.4% in the third-quarter, while the gauge for non-tradable inflation climbed to 2.4% from 2.2% during the same period.

The Australian dollar gained ground following the above-forecast CPI print, with AUD/USD clearing the 0.7200 handle to close the day at 0.7247. Learn more with the DailyFX Advanced Guide for Trading the News.

AUD/USD Rate Daily Chart

Image of audusd daily chart
  • Keep in mind, the AUD/USD rebound following the currency market flash-crash has been capped by the 200-Day SMA (0.7187), with the exchange rate marking another failed attempt to break/close above the moving average in April.
  • However, the broader outlook for AUD/USD has become clouded with mixed signals as the exchange rate threatens the downward trend from late last year, while the Relative Strength Index (RSI) appears to be stuck in a wedge/triangle formation.
  • Nevertheless, the rebound from the March-low (0.7003) may continue to unravel amid the lack of momentum to close above the Fibonacci overlap around 0.7170 (23.6% expansion) to 0.7180 (61.8% retracement), with the close below the 0.7090 (78.6% retracement) to 0.7110 (78.6% retracement) pivot raising the risk for a move back towards 0.7020 (50% expansion) as the exchange rate carves a series of lower highs & lows.
  • A break of the March-low (0.7003) raises the risk for a move back towards 0.6950 (61.8% expansion), with the next area of interest coming in around 0.6850 (78.6% expansion).

Additional Trading Resources

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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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