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Australian Dollar Carried by Sentiment as Producer Prices Fall From Q2 Peak

Australian Dollar Carried by Sentiment as Producer Prices Fall From Q2 Peak

2011-10-23 01:00:00
David Liu, Technical Strategist
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THE TAKEAWAY: Q3 Producer prices weaker > RBA may relax tightening > AUD spikes lower

Australian producer prices fell from its recent Q2 peak as raw materials costs declined sharply as the global recovery slowed. However, the Australian dollar and major risk currencies gained against the US dollar as risk appetite climbed higher in early Asian trading on hopes for the EU to resolve its debt crisis by Wednesday.

EVENT

ACT

EXP

PREV

Producer Price Index Q3 (YoY)

2.7%

2.9%

3.4%

Producer Price Index Q3 (QoQ)

0.6%

0.8%

0.8%

A breakdown of third quarter producer prices showed a considerable decline in crude and intermediate materials. Intermediate materials prices used by Australian businesses grew 0.1% from the Q2 compared to 1.8% previously from Q1 to Q3, while crude materials rose 0.1% compared to 2.8% previously. This decline is most likely due to demand for energy and base metals falling as the global economic recovery unhinged as the US remains sluggish and China actively trying to cool its economy. Producer prices represent the cost of goods paid by manufacturers, and is loosely correlated with consumer price indices.

Australian_Dollar_Carried_by_Sentiment_as_Producer_Prices_Fall_From_Q2_Peak_body_Picture_5.png, Australian Dollar Carried by Sentiment as Producer Prices Fall From Q2 Peak

Australian Producer Price Index. Data Bloomberg.

The Australian dollar spiked down immediately across all pairs after the weaker report as traders saw a greater possibility of more dovish commentary from the RBA as prices slowed. However in early Asian trading, the Aussie remains tied to overall risk appetite. Although this weekend’s EU summit failed to come up with a comprehensive plan to solve its debt crisis and to prevent contagion, US equity futures are slowing regaining ground. At the time of writing, S&P500 futures are lower by 0.259%, climbing from -0.545%, while the Australian dollar has shed 0.350% against the US dollar since the start of the trading session.

Australian_Dollar_Carried_by_Sentiment_as_Producer_Prices_Fall_From_Q2_Peak_body_Picture_6.png, Australian Dollar Carried by Sentiment as Producer Prices Fall From Q2 Peak

AUDUSD 5 minute chart; vertical line indicates time of data release. Chart generated with FXCM Strategy Trader.

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