– Australia Consumer Price Index (CPI) to Slow From Fastest Pace of Growth Since 2011.
– Core Inflation to Fall Back From Highest Reading Since 2010.
Trading the News: Australia Consumer Price Index (CPI)
A marked slowdown in Australia’s Consumer Price Index (CPI) may spur a bearish break in the AUD/USD as it puts increase pressure on the Reserve Bank of Australia (RBA) to keep the benchmark interest rate on hold for an extended period of time.
Sign up for David’s Email Distribution List for More Updates!
What’s Expected:
Click Here for the DailyFX Calendar
Why Is This Event Important:
At the same time, it seems as though RBA Governor Glenn Stevens will retain the verbal intervention on the Australian dollar in order to further assist with the rebalancing of the $1T economy, and the AUD/USD remains at risk for a further decline as the central bank head remains in no rush to normalize monetary.
Expectations: Bearish Argument/Scenario
Release
Expected
Actual
Employment Change (SEP)
15.5K
-29.7K
Retail Sales (MoM) (AUG)
0.4%
0.1%
Wage Price Index (QoQ) (2Q)
0.7%
0.6%
Subdued wage growth paired with the persistent weakness in the labor market may drag on inflation, and a marked slowdown in the CPI may renew bets for additional monetary support amid the weakening outlook for global growth.
Risk: Bullish Argument/Scenario
Release
Expected
Actual
AiG Performance of Construction Index (SEP)
—
59.1
Building Approvals (MoM) (AUG)
1.0%
3.0%
Gross Domestic Product s.a. (QoQ) (2Q)
0.4%
0.5%
However, the ongoing expansion in building activity may generate a stronger-than-expected inflation print, and sticky price pressures may boost interest rate expectations as the central bank continues to see a more meaningful recovery in 2015.
How To Trade This Event Risk(Video)
Bearish AUD Trade: CPI Slows to 2.3% or Lower
Need red, five-minute candle following the CPI report for a potential short AUD/USD trade
If market reaction favors a bearish aussie trade, short AUD/USD with two separate position
Set stop at the near-by swing high/reasonable distance from entry; look for at least 1:1 risk-to-reward
Move stop to breakeven on remaining position once initial target is met, set reasonable limit
Bearish AUD Trade: Price Growth Exceeds Market Expectations
Need green, five-minute candle to consider a long AUD/USD position
Carry out the same setup as the bearish aussie trade, just in the opposite direction
Potential Price Targets For The Release
Join DailyFX on Demandfor Real-Time Updates on the DailyFX Speculative Sentiment Index!
Chart – Created Using FXCM Marketscope 2.0
As the wedge/triangle formation highlights consolidation phase, will need to see a break in the RSI to generate a near-term bias.
Interim Resistance: 0.8845 (23.6% retracement) to 0.8865 (61.8% expansion)
Interim Support: 0.8600 pivot to 0.8610 (38.2% expansion)
Read More:
Price & Time: When Does the USD Trend Resume?
EURCAD Hits Target- Long Scalps Eye 1.4457 Resistance
Impact that Australia’s Consumer Price Index (CPI) report has had on AUD during the last release
Period
Data Released
Estimate
Actual
Pips Change
(1 Hour post event )
Pips Change
(End of Day post event)
2Q 2014
07/23/2014 1:30 GMT
3.0%
3.0%
+48
+61
2Q 2014Australia Consumer Price Index (CPI)
Australia’s 2Q Consumer Price Index (CPI) came in line at an annualized rate of 3.0% after expanding 2.9% during the first three-months of 2014, while the core inflation unexpectedly surged to a 4-year high of 2.9%. Heightening price pressures may continue to dampen bets of seeing the the Reserve Bank of Australia (RBA) further embark on its easing cycle, but it seems as though the central bank is in no rush to normalize monetary policy as the persistent strength in the Australian dollar dampens the outlook for growth and inflation. Nevertheless, the better-than-expected CPI prints spurred a bullish reaction in the Australian dollar, with the AUD/USD climbing above the 0.9400 handle and ending the Asia-Pacific trade at 0.9445.
— Written by David Song, Currency Analyst
To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.
To be added to David’s e-mail distribution list, please follow this link.
Trade Alongsidethe DailyFX Team on DailyFX on Demand
Looking to use the DailyFX Trade Signals LIVE? Check out Mirror Trader.
New to FX? Watch this Video
Join us to discuss the outlook for the major currencies on the DailyFXForums
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.Learn forex trading with a free practice account and trading charts from FXCM.
Source: Daily fx
