AUDUSD Analysis and Talking Points
- Downside Risks to Australian Inflation Following RBA Downgrade
- Chinese Economy Slowing Amid Trade War Environment
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Downside Risks to Australian Inflation Following RBA Downgrade
A slew of data throughout the Asian session may see the Australian Dollar particularly volatile. Eyes will be on the latest Australian inflation data for the third quarter, whereby the headline is expected to dip to 1.9% from 2.1%, while the RBA's preferred measure of inflation is seen hovering below the RBA’s 2-3% target. At the statement of monetary policy, the RBA brought the near-term outlook for inflation into focus when they downgraded their underlying 2018 inflation forecast to 1.75% from 2%, citing declines in electricity prices and changes in government policy that would likely result in a drop-in child care prices. As such, today’s inflation report is skewed to the downside.
Chinese Economy Slowing
Elsewhere, Chinese Manufacturing PMI will also garner attention for Aussie traders. Recent Chinese economic data has shown a notable slowdown in the second largest economy amid the trade war environment, which in turn increases the downside risk towards the PMI reading.
Source: DailyFX
AUDUSD | Soft Data Increases Risk of 0.70 Break
The Australian Dollar remains stuck in its downward trajectory. Prices have been consolidating within a tight range as of late, continuing to hover around the 0.7100 handle. However, given the recent sell-off in equity markets, coupled with the trade war environment, risk reversals continue to show investors paying a premium for AUD puts (downside protection) vs calls. O/n options vols imply a 45pip breakeven for AUDUSD, which covers the Australian CPI and Chinese PMI figures. If indeed both metrics surprise to the downside, the Australian Dollar could make a test to break the 0.70 handle.
AUDUSD Price Chart: Daily Time Frame (April – October 2018)
--- Written by Justin McQueen, Market Analyst
To contact Justin, email him at Justin.mcqueen@ig.com
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