When is Australia inflation data and how could it affect AUD/USD?

Overview

The fourth quarter (Q4) release of the Australian Consumer Price Index (CPI), as well as the monthly CPI for December, scheduled for publishing on early Wednesday, appears the crucial data for the AUD/USD pair traders. The reason could be linked to the Reserve Bank of Australia’s (RBA) recent hesitance in defending the hawkish monetary policy, not to forget the downbeat Aussie pair’s trading near the multi-day high.

Not only the headline CPI Q4 and the monthly inflation numbers but the RBA Trimmed Mean CPI for Q4 also appears crucial to watch for the AUD/USD pair traders.

Forecasts suggest that the headline CPI is expected to ease to 1.6% QoQ versus 1.8% prior but the monthly CPI could rise to 7.7% YoY from 7.3% previous readings. Further details signal that the RBA Trimmed Mean CPI may inch up to 1.9% from 1.8%.

Ahead of the release, Analysts at the ANZ said,

The trimmed mean, non-tradables and services inflation are the key measures to watch. We expect all of these measures to have lifted strongly in Q4, and for trimmed mean inflation to rise to 6.7% y/y, exceeding the RBA’s forecast of 6.5% y/y.

On the same line, Westpac stated

We see Australia’s Q4 CPI. Robust gains in food prices, rising fuel prices and a bounce in holiday travel prices are all expected to continue pushing headline inflation higher, albeit at a slower pace than observed in the September quarter. Hence, Westpac anticipates a 1.5% and 1.6% lift for the headline and trimmed mean CPI measures respectively (market f/c: 1.6% and 1.5% respectively). The annual inflation rates we expect of 7.4% headline and 6.6% trimmed mean should be the cycle peak.

How could AUD/USD react to the news?

AUD/USD renews its intraday low near 0.7030 as it pares for the key data amid mixed sentiment during early Wednesday. In doing so, the Aussie pair also takes clues from the downbeat US stock futures and the Treasury bond yields to print mild losses.

That said, the Aussie pair is likely to witness profit booking should the Aussie inflation data disappoint as the RBA appears running out of steam to defend the hawkish interest rate moves. It should be noted that the RBA Trimmed Mean CPI will gain major attention and hence any minor change in the headline CPI data may not affect the AUD/USD to a much extent.

Technically, the 200-week Simple Moving Average (SMA) near 0.7070 appears the key hurdle for the AUD/USD buyers to watch in case of the pair’s further upside. Until then, the firmer RSI and looming bull cross on the daily chart, a condition when 50-DMA crosses the 200-DMA from below, can keep the buyers hopeful.

Key notes

AUD/USD Price Analysis: On the verge to test a five-month high around 0.7060 ahead of Australian CPI

AUD/USD buoyed by risk-appetite improvement climb above 0.7040s ahead of Aussie CPI

About Aussie Consumer Price Index

The quarterly Consumer Price Index (CPI) published by the Australian Bureau of Statistics (ABS) has a significant impact on the market and the AUD valuation. The gauge is closely watched by the Reserve Bank of Australia (RBA), in order to achieve its inflation mandate, which has major monetary policy implications. Rising consumer prices tend to be AUD bullish, as the RBA could hike interest rates to maintain its inflation target. The data is released nearly 25 days after the quarter ends.