Australia’s Monthly Consumer Price Index (CPI) for February, scheduled for publishing on early Wednesday around 00:30 GMT, appears the crucial data for the AUD/USD pair traders to watch. 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 Retail Sales and upbeat employment figures.
Forecasts suggest that the headline CPI is expected to ease to 7.1% YoY versus 7.4%, confirming policymakers’ latest claims of easing inflation pressure due to higher rates.
Ahead of the release, Analysts at the ANZ said,
Our expectation for the monthly CPI of a 6.8% yearly increase would imply a monthly outcome of 0.3%, which while solidly above the pre-2022 February averages would represent a step down from the February 2022 result. A monthly CPI result weaker than our expectation would present a challenge to our view that the RBA will tighten again in April.
On the other hand, National Australia Bank (NAB) said
We expect the Monthly CPI Indicator to fall to 7.2% from 7.4% YoY, in line with consensus, but what the services subcomponents say about inflation trends will be as important as the headline given the limitations of the monthly indicator.
TD Securities further elaborated the Aussie inflation impact while saying,
February CPI print will grab attention after the Bank flagged it as a key data point for its April decision. Our dovish forecast (7.0% YoY) is due to the large seasonal decline from recreational services, partly offset by firm price increase rises for education and transport. We still retain a 25 bps hike for the April meeting as inflation is still far above the RBA's inflation target.
How could AUD/USD react to the news?
AUD/USD retreats from intraday high to 0.6705 ahead of the day, probing the two-day uptrend, while portraying the pre-data anxiety. Adding strength to the pair’s pullback moves could be the looming financial market check in Australia and the market’s indecision about the much-debated $5.4 million Credit Default Swap (CDS) trade of Deutsche Bank. However, overall optimism about overcoming the banking crisis keeps the Aussie pair buyers hopeful.
Even so, Tuesday’s downbeat Australia Retail Sales and the previously cautious commentary from the Reserve Bank of Australia (RBA) officials keep the sellers on the lookout for a softer Australia Monthly Consumer Price Index (CPI) below the 7.2% YoY forecast. In that case, the RBA’s policy pivot could gain the market’s attention and weigh on the AUD/USD price.
Alternatively, a positive surprise may join the risk-on mood and broader USD weakness to underpin the bullish bias surrounding the AUD/USD pair.
Technically, A two-week-old bullish channel keeps AUD/USD buyers hopeful unless the quote breaks the 0.6765-6645 zone.
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.
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