Aussie Dollar Risk-Off Decline Amplified by Inflation Estimates

Talking Points

• Australian Dollar declines after consumer inflation expectations released
• Price estimates declined to 3.2 percent, the lowest reading since June 2015
• Recent RBA rate decision highlights board members low inflation concern

Having trouble trading the Australian Dollar? This may be why.

The Australian Dollar fell against its major peers after a survey of consumer inflation expectations crossed the wires. Heading into the announcement, the sentiment-linked Aussie was following Wall Street lower from Wednesday. The report showed that price growth expectations fell to 3.2 percent in April from 3.6 percent in March. This marks the lowest reading since June 2015. This estimate follows the decline in the country’s 1Q CPI reading.

After the worse-than-expected quarterly inflation reading, the Reserve Bank of Australia cut rates citing recent weakness in price levels. This sent the Aussie tumbling as investors priced in more RBA policy easing in the near-term. The markets are pricing in at least one rate cut from the central bank over the next year and a 21 percent probability that this will occur in June, the RBA’s next monetary policy announcement.

Meanwhile, the DailyFX Speculative Sentiment Index (SSI) is showing a reading of 1.7 following the announcement, meaning that for every trader short the AUD/USD, there are 1.7 on the long side. The SSI is a contrarian indicator, implying further AUD/USD weakness ahead.

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