When is China's CPI, RBA Monetary Policy Statement and how could they affect AUD/USD?

Early Friday 01:30 GMT sees the RBA’s quarterly statement on monetary policy and China’s July month CPI and PPI data, which in turn makes that timeline the key for AUD/USD traders.

Considering recent comments from the Reserve Bank of Australia’s (RBA) Governor Philip Lowe and no change in monetary policy, it is expected that the RBA will sound a bit neutral towards future rate cuts while offering a downward revision to the economic forecasts.

On the other hand, China’s Consumer Price Index (CPI) may remain unchanged at 2.7% on YoY but can rise to +0.2% from -0.1% prior on the MoM basis. Further, the Producer Price Index (PPI) bears the consensus to decline to -0.1% from 0.0% on YoY format.

Ahead of the releases, TD Securities say:

The RBA has delivered two cuts as was factored into the May SoMP forecasts. However we expect the Bank to revise its near term GDP forecasts lower by 0.25% pts following a soft Q1 GDP print but raise its near term unemployment rate forecasts by 0.25% pts. Should the Bank maintain its longer term forecasts, the weaker starting point would imply the Bank needing to cut to hit its forecasts. 

We expect CPI to push higher to 2.8% y/y in July from 2.7% y/y in June, largely driven by food prices. Rising pork prices (21.1% y/y in June) fuelled by the impact of African Swine Fever will likely continue to push up the food component of CPI and thus overall CPI over H2 19. Food prices rose 8.3% y/y in June compared to a 1.4% y/y increase in non-food CPI. We expect ex-food CPI to remain subdued, which will likely mean that PBoC does not pull back from its targeted easing stance.

How could they affect the AUD/USD?

While escalating tension between the US and China is already taking its toll on the Aussie pair, any further deterioration in either the central bank’s future monetary policy/economic outlook or inflation data from its latest customer China will be taken seriously by the sellers.

On the brighter note, the RBA might respect recently upbeat statistics from Australia and China after it peddled the brakes of the rate cut trajectory in its last meeting, which in turn will be Aussie positive if Chinese CPI also flashes welcome numbers.

Technically, the pair continues to aim for 0.6750/45 support-zone unless clearing June month low of 0.6831, which holds the key for the quote’s fresh recovery in the direction to 21-day exponential moving average (EMA) level near 0.0.6875. If prices slip under 0.6745, the yearly bottom of 0.6683 can lure bears.

Key Notes

AUD/USD weakens amid trade/political news ahead of key catalysts from RBA, China

AUD/USD Analysis: regains 0.6800 amid better market mood

About the RBA Monetary Policy Statement

The RBA Monetary Policy Statement released by the Reserve bank of Australia reviews economic and financial conditions determines the appropriate stance of monetary policy and assesses the risks to its long-run goals of price stability and sustainable economic growth. It is considered as a clear guide to the future RBA interest rate policy. Any changes in this report affect the AUD volatility. If the RBA statement shows a hawkish outlook, that is seen as positive (or bullish) for the AUD, while a dovish outlook is seen as negative (or bearish).

About China CPI

The Consumer Price Index is released by the National Bureau of Statistics of China. It is a measure of retail price variations within a representative basket of goods and services. The result is a comprehensive summary of the results extracted from the urban consumer price index and rural consumer price index. The purchase power of the CNY is dragged down by inflation. The CPI is a key indicator to measure inflation and changes in purchasing trends. A substantial consumer price index increase would indicate that inflation has become a destabilizing factor in the economy, potentially prompting The People’s Bank of China to tighten monetary policy and fiscal policy risk. Generally speaking, a high reading is seen as positive (or bullish) for the CNY, while a low reading is seen as negative (or Bearish) for the CNY.

About China PPI

The Producer Price Index released by the National Bureau of Statistics of China is a measurement of the rate of inflation experienced by producers. It captures the average changes in prices received by Chinese domestic producers of commodities in all stages of processing (crude materials, intermediate materials, and finished goods). Changes in the PPI are widely considered as an indicator of commodity inflation. If the Producer Price Index increase is excesive, it would indicate that inflation has become a destabilizing factor in the economy, The People’s Bank of China would tighten monetary policy and fiscal policy risk. Generally speaking, a high reading is seen as positive (or bullish) for the CNY, whereas a low reading is seen as negative (or bearish) for the CNY.