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Australian Dollar Sinks as Markets Eye Headline CPI Miss

Australian Dollar Sinks as Markets Eye Headline CPI Miss

Daniel Dubrovsky, Contributing Senior Strategist

Talking Points:

  • The Australian Dollar fell as a mixed bag of 1Q CPI figures crossed the wires
  • Headline CPI rate rose 2.1% y/y versus 2.2% expected and 1.5% in 4Q 2016
  • Core inflation increased 1.9% y/y against 1.8% forecasted and 1.6% prior

What do retail traders’ buy/sell decisions hint about the Australian Dollar trend? Find out here.

The Australian Dollar fell against its major counterparts after a mixed bag of inflation measurements crossed the wires. Headline CPI rose 2.1% y/y versus 2.2% expected and 1.5% in the fourth quarter of 2016. Even though this was a disappointment, it was the highest reading since 2014 and now stands within the RBA’s inflation target. The quarterly gauge also fell short of expectations, rising 0.5% versus 0.6% expected.

On the brighter side of things, the trimmed mean measurement came in at 1.9% y/y versus 1.8% expected and 1.6% prior. A measure similar to core CPI, it aims to get at the underlying inflation trend by excluding those components of index with unusually large gains and losses. This was the highest reading since 2015. The quarterly reading held steady at 0.5% as expected.

The markets appeared to lean their attention towards the headline figures, interpreting the inflation report as dovish for RBA monetary policy expectations. Indeed, Australian 2-year government bond yields declined following the data release. However, the markets do not envision the central bank lowering rates in the near term. Perhaps the Reserve Bank of Australia’s board members will offer their views of the inflation report during next week’s monetary policy announcement.

Chart created in TradingView

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