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Australian Dollar Wilts As Third Quarter CPI Data Miss Forecasts

Australian Dollar Wilts As Third Quarter CPI Data Miss Forecasts

David Cottle, Analyst


Talking Points:

  • Australian consumer prices rose by 0.6% on the quarter and 1.8% on the year in the third quarter
  • Both were below expectations
  • The Australian Dollar took a heavy hit as traders assessed the interest-rate outlook

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The Australian Dollar fell Wednesday on news of surprisingly low inflation in its homeland.

The official Consumer Price Index for the year’s third quarter rose by 0.6% on the quarter, well below the 0.8% rise expected. The annualised gain was 1.8%, when the markets had looked for a 2% gain. Analysts had expected higher electricity prices seen through the quarter to lift CPI inflation back into the Reserve Bank of Australia’s target range of 2-3%.

Had it done so, there may have been some bringing-forward of expectations as to the timing of the next interest rate increase. However now the prognosis that the Official Cash Rate will be staying put at its 1.50% record low until well into 2018 is likely to stand.

AUD/USD wilted after the figures, dropping 40 ticks or so in short order.

Bear in mind that the methodology used to calculate the CPI will undergo one of its regular reviews before we see the final quarter’s numbers. The process comes around every five or six years and tends to dampen subsequent inflation readings by between 0.1 and 0.4 percentage points. In short, we could see still lower readings ahead and more consternation for Aussie bulls.

On its daily chart, AUD/USD remains in clear downtrend from 2017’s two-year highs which were hit in September. However, momentum had seemed to be slowing. The pair could now be trying to build a base between October 6’s intraday low of 0.7735 to the downside and October 13’s high of 0.7896 on top.

However, these latest data won’t help that thesis and a weekly close within this range could be very instructive. Keep an eye on it.

--- Written by David Cottle, DailyFX Research

Contact and follow David on Twitter: @DavidCottleFX

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