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Post-RBA AUDUSD Rebound to Take Cues From China CPI

Post-RBA AUDUSD Rebound to Take Cues From China CPI

David Song, Strategist

Trading the News: China Consumer Price Index (CPI)

Updates to China’s Consumer Price Index (CPI) may influence the near-term outlook for AUD/USD as the headline reading for inflation is expected to increase to 2.5% from 2.3% per annum in March.

Image of DailyFX economic calendar

Positive developments coming out of China, Australia’s largest trading partner, may impact the near-term outlook for AUD/USD as the Reserve Bank of Australia (RBA) keeps the official cash rate (OCR) on hold ahead of the Federal election on May 18.

Indications of a resilient Chinese economy may heighten the appeal of the Australian dollar as it encourages the RBA to retain a wait-and-see approach, and Governor Philip Lowe & Co. may stick to the same script at the next meeting on June 4 as ‘the outlook for the global economy remains reasonable.’

In turn, a CPI print of 2.5% or higher may generate a rebound in AUD/USD, but a below-forecast reading may produce headwinds for the Australian dollar as it puts pressure on the RBA to further insulate the economy.

Impact that China’s CPI 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)

MAR

2019

04/11/2019 01:30:00 GMT

2.3%

2.3%

-7

-43

March 2019 China Consumer Price Index (CPI)

AUD/USD 5-Minute Chart

Image of audusd 5-minute chart

China’s Consumer Price Index (CPI) climbed to 2.3% from 1.5% per annum in February to mark the highest reading since October 2018. A deeper look at the report showed higher food prices leading the advance, with the gauge climbing to 3.5% from 1.2% during the same period, while transportation costs increased 0.1% in March after contracting 1.2% the month prior.

The in-line prints spurred a limited reaction in the Australian dollar, but AUD/USD struggled to hold its ground throughout the day, with the exchange rate closing the session at 0.7123. Learn more with the DailyFX Advanced Guide for Trading the News.

AUD/USD Rate Daily Chart

Image of audusd daily chart
  • The AUD/USD rebound following the currency market flash-crash has been capped by the 200-Day SMA (0.7164), with the exchange rate marking another failed attempt to break/close above the moving average in April.
  • More recently, AUD/USD appears to have marked a failed attempt to break out of the monthly opening range even though the RBA sticks to the sidelines, with the lack of momentum to hold above the 0.7020 (50% expansion) region raising the risk for further losses.
  • In turn, AUD/USD remains at risk of giving back the advance from the 2019-low (0.6745) as both price and the Relative Strength Index (RSI) fail to preserve the wedge/triangle formation from earlier this year, with the 0.6950 (61.8% expansion) hurdle on the radar following the break of the March-low (0.7003).
  • Next downside area of interest comes in around 0.6850 (78.6% expansion) to 0.6880 (23.6% retracement) followed by 0.6730 (100% expansion).

Additional Trading Resources

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Are you looking to improve your trading approach? Review the ‘Traits of a Successful Trader series on how to effectively use leverage along with other best practices that any trader can follow.

--- Written by David Song, Currency Strategist

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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