AUD: High stakes on the CPI print - ANZ

Research Team at ANZ, suggests that the global disinflationary pressures are waning, putting additional focus on the Australian Q3 CPI this week.

Key Quotes

“Ahead of the CPI, market pricing of the RBA has moved to effectively neutral (though with an easing bias) and the AUD is trading in a well-defined range.

We continue to think that the threshold to a sustained topside break in the AUD or move to price hikes remains high, although there is a small possibility that our view will be tested this week.

We think the risks to this week’s CPI are on the downside, we think that the threshold to a sustained break remains exceptionally high. ANZ economics is largely in line with consensus, looking for average underlying inflation to remain low (+0.4% q/q, +1.5% y/y), broadly consistent with the RBA’s forecasts.

The stakes are high this week. A big shift in the trajectory of inflation in Australia would threaten both our view that the market will not move to price in hikes into the OIS strip, and that the AUD remains capped, with a range top at USD0.7850. However, this is not our core view. A number of factors (rising under-employment, retail sector competition and soft rental markets) all continue to suggest that we have not reached a significant point of inflection for core inflation. As such, the strategy into the number is to sell any strength in the AUD or any attempts to price in a tightening track for the RBA.”