Australian RBA's quarterly inflation preview: CPI could boost odds for a rate cut
|- Subdued Australian inflation to boost odds of a cash rate cut.
- RBA trimmed quarterly inflation seen up by 1.7% YoY in the first quarter of the year.
The RBA is scheduled to unveil Q1 inflation estimates early Wednesday, with the core figures anticipated to have risen by 0.4% in the first quarter of the year, matching the previous quarterly reading, and by 1.7% yearly basis, this last, below Q4 outcome of 1.8%. At this levels, inflation will remain below the central bank's target of 2-3%, therefore reinforcing the ongoing speculation that policymakers may choose to cut rates sooner rather than later.
CPI data comes a week ahead of the next RBA´s monetary policy meeting. Back in April, the central bank said that there are two conditions that could justify a cash rate hike: disappointing inflation and rising unemployment.
Inflation has been below the central bank's target for over three years, but the employment market is doing better, as despite ticking modestly higher in March, the unemployment stands at 5.0%, near an 8-year low. Jobs' creation has been robust throughout the last year, with the only down note being mute wages' growth. Despite substantial employment growth, population growth and more people looking for a job made it difficult to "get a tight enough labour market to push wages growth higher," according to IMF economist Alex Joiner.
There's yet another factor to consider. China's latest GDP came in slightly above expected, printing 6.4% for the first quarter of the year, matching Q4 reading and above the market's expectations of 6.3%. Other data released this month was also upbeat, cooling down concerns about an economic slowdown, although just modestly. A better performance of the Chinese economy will tend to support the Australian one. Hopes that China and the US will reach a trade agreement are also a positive clue for the Aussie, albeit it could take over a month before the market gets a confirmation there.
For the immediate reality, the Aussie is under pressure despite the fact that the greenback is underperforming, with the AUD/USD pair flirting with the 0.7100 level. That said, if inflation misses the market's estimates, the pair would likely extend its decline, with a critical support at 0.7055, this month low. Above expected figures will probably give the pair a temporal boost, but market players will probably remain cautious as sustained inflationary pressure seems quite unlikely at this point.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.