Australian CPI (Consumer Price Index), which is released each quarter, is an inflation index which measures the change in the price of goods and services charged to consumers. A reading which is higher than the market forecast is bullish for the Australian dollar.
Indicator Background
Analysts consider CPI one of the most important economic indicators, and the release of the Australian CPI can affect the direction of AUD/USD. If inflation is considered too high or too low, the central bank may intervene by adjusting interest rates, which will affect the Australian dollar.
The CPI reading for Q4 was a respectable 0.8%, beating the estimate of 0.5%. The markets are expecting another gain of 0.8% for the Q1 reading. Will the indicator repeat and beat the market prediction?
Sentiments and levels
AUD/USD continues to trade at high levels, despite remarks from the RBA that the Aussie is too high for its liking. The US dollar has been under pressure after dovish comments from Janet Yellen about the health of the US economy, but US employment numbers have been solid, boosting the likelihood of another QE trim at the end of April, which is a dollar-positive event .Thus, the overall sentiment is neutral on AUD/USD towards this release.
Technical levels, from top to bottom: 0.9526, 0.9442, 0.9368, 0.9283, 0.9180, and 0.9000.
5 Scenarios
Within expectations: 0.5% to 1.1%. In this scenario, AUD/USD could show some slight fluctuation, but it is likely to remain within range, without breaking any levels.
Above expectations: 1.2% to 1.6%: A stronger reading than predicted could push the pair above one resistance line.
Well above expectations: Above 1.6%: An unexpectedly sharp rise in inflation could push AUD/USD upwards, with a second resistance line at risk.
Below expectations: 0.0% to 0.4%: A lower than expected reading could pull the pair downwards, with one support level at risk.
Well below expectations: Below 0.0%: A reading in negative territory could result in the pair breaking a second support level.
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