Australian RBA's Quarterly Inflation Preview: Shrinking to record lows

Australian inflation data for the second quarter of the year is expected to plunge to record levels, a result of the ongoing battle to control the coronavirus pandemic. According to preliminary estimates, Q2 CPI is seen at -2.0% from 0.3% in the previous quarter, and at -0.4% when compared to the second quarter of 2019 vs. the previous 2.2%. The Trimmed Mean CPI is expected at 0.1% QoQ and at 1.4 YoY.

Consumption data indicates a significant deterioration

The slump in inflation figures, while concerning, is already priced in within the pandemic context the world is leaving, and clearly correlated to the lockdowns imposed to contain the spread of the coronavirus. Nevertheless, the expected numbers are just another sign of how harmful it has been for economies. The pandemic could be over much sooner than any economic comeback.

Anticipating a dismal outcome, consumer and business confidence had shown a significant deterioration in the three months to June, as well as leading indicators. On a positive note, the Reserve Bank of Australia has stated multiple times that the economic downturn has been not as bad as initially estimated. Nevertheless, policymakers are aware of the downward risks to the economy, related to the COVID-19 uncertainty.

Meanwhile, the greenback’s weakness keeps the pair near this year high, at 0.7182. Worse-than-anticipated numbers could take their toll on the Aussie, but a sustained decline is out of the picture for now. Instead, bulls can take their chances after the initial reaction to CPI figures. Upbeat numbers, on the other hand, can push the pair above the mentioned high, particularly considering the American currency will likely remain weak ahead of Q2 GDP figures and the US Federal Reserve Monetary Policy decision.

AUD/USD Technical outlook

The AUD/USD pair has entered a consolidative phase after gaining the 0.7100 level last week, with no signs of upward exhaustion in the long-term. The daily chart shows that it keeps developing above a bullish 20 DMA, which keeps advancing above neutral larger ones. Technical indicators lack strength, but the RSI stands around 70 while the Momentum holds above its 100 level.

The short-term picture is neutral-to-bullish as the pair continues to find support in a flat 20 SMA, while technical indicators lack directional strength well into positive levels. This year high at 0.7182 is the immediate resistance, ahead of the 0.7220 price zone. Beyond this last, the advance could continue towards the 0.7260 price zone. The immediate support, on the other hand, is 0.7110, followed by 0.7063, where the pair bottomed last Friday.