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Australian Dollar Up After TD Inflation Gauge, AUD/USD Stretched

Australian Dollar Up After TD Inflation Gauge, AUD/USD Stretched

David Cottle, Analyst


Talking Points:

  • Australian inflation ran at 2.3% in December, according to an unofficial gauge
  • This was slower rate than that seen in November, but still above the key 2% level
  • The most recent official figures suggest a rather slower pace of price rises

Check out retail traders’ views on the Australian Dollar at our Sentiment Page. For the longer-term technical and fundamental outlook, take a look at the DailyFX Quarterly Forecast

The Australian Dollar gained on its generally weaker US cousin Monday despite some weakening in a domestic consumer price inflation gauge.

The reading from the Melbourne Institute and TD Securities showed that prices rose by 0.1% on the month in December, below November’s 0.2% gain. The annual rate was 2.3%, well below the prior month’s 2.7% and the ‘trimmed mean’ reading came in at 2.2% on the year.

Official Australian inflation numbers are only released once every calendar quarter to the TD measure serves as a sort of monthly stand-in for them. The most recent official data, for the third quarter, showed an annual inflation rate of 1.8%, continuing a trend of lower rates from the first quarter’s 2.1% rise.

The sight of any inflation gauge above the key 2% level is arguably good news for Aussie Dollar bulls, and AUD/USD did indeed gain after the data. It may be a mistake to say that the numbers caused the gain however as the US Dollar had already been under broad pressure as markets look to global economic recovery and the prospect of broad interest-rate rises.

The Reserve Bank of Australia is charged with keeping inflation between 2% and 3% over the course of an economic cycle and its rate setters may find some cause for cheer in the TD numbers. Still, official inflation is expected to remain at least relatively docile with futures markets failing to fully price in any increase to Australia’s key interest rate, the Official Cash Rate- until the start of 2019. The OCR is at a record low of 1.50%.

On its daily chart AUD/USD remain in the steep uptrend which has held sway since early December. The Aussie is starting to look a little overbought as the old year’s highs beckon, however. By rising above last October’s highs, has passed back into the region in which the RBA has started to worry aloud about its strength in the recent past.

Some consolidation around current levels would probably be healthy, even if another push higher follows 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.