When is the Aussie CPI data and how could it affect AUD/USD?

Early Wednesday in Asia, the Australian Bureau of Statistics (ABS) will roll out the second quarter (Q2) inflation numbers for Australia. The releases will include the headline Consumer Price Index (CPI) and the Reserve Bank of Australia’s (RBA) Trimmed Mean CPI.

Considering the RBA’s repeated refrains from accepting the economic weakness, coupled with the expectations that the coronavirus (COVID-19) will soon be over, today’s inflation data may get fewer audience than previously.

That said, the CPI is likely declining from 0.3% prior to -2.0% on the QoQ basis while expected to soften to -0.4% from 2.2% previous readouts on the YoY format. Further, RBA Trimmed Mean CPI could recede to 0.1% from 0.5% on a quarterly basis while likely deteriorating to 1.4% from 1.8% on YoY, as per the forecasts.

TD Securities seems to consider today’s data as a non-event as their analysts said:

The temporary introduction of free child care, the drop in oil prices and falling rents are likely to drive a record drop in headline Q2 CPI, -2% q/q, taking annual inflation to -0.5%. For core inflation, we are looking for trimmed mean inflation to be flat q/q, taking annual trimmed to 1.3%. This is below the 1.5% RBA forecast, marking 24 quarters that the core inflation will be below the 2.5% midpoint.

On the other hand, Westpac said:                                                                                                

Plunging fuel prices and free childcare are set to jolt headline inflation in Q2, the market and Westpac expecting a record quarterly decline of -2.0%qtr and -2.4%qtr respectively (prior: +0.3%qtr). The trimmed mean should see a more modest, but still likely negative, outcome (prior: 0.5%qtr, market f/c:-0.1%qtr, Westpac: -0.2%qtr). Given the extreme condition of the economy in Q2, the RBA is unlikely to place much weight on this data.

How could it affect AUD/USD?

Although the weakening in the prices could increase forecasts of negative interest rates, as recently suggested by the RBA Governor Philip Lowe, the AUD/USD pair may cheer the US dollar weakness to defy the negative impacts of downbeat data. It should additionally be noted that the pair’s strength also takes clues from the comparatively stronger Aussie fundamentals and clarity of government actions than in America. As a result, weak CPI numbers might offer a temporary pullback in the Aussie prices unless marking extremely disappointing figures. On the contrary, any upbeat outcome will be welcomed with a zeal.

Technically, 0.7065/60 support-zone, comprising Friday’s bottom and June month’s top, limits the pair’s short-term downside. However, 0.7200 and 0.7210 become the key resistances before targeting February 2019 top surrounding 0.7300.

Key Notes

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

AUD/USD wavers around mid-0.7100 area with eyes on Aussie CPI

About the Australia Consumer Price Index (CPI)

The Consumer Price Index released by the RBA and republished by the Australian Bureau of Statistics is a measure of price movements by the comparison between the retail prices of a representative shopping basket of goods and services. The purchase power of AUD is dragged down by inflation. The CPI is a key indicator to measure inflation and changes in purchasing trends. A high reading is seen as positive (or bullish) for the AUD, while a low reading is seen as negative (or Bearish).

About the Australia RBA Trimmed Mean CPI

The Consumer Price Index released by the RBA and republished by the Australian Bureau of Statistics is a measure of price movements by the comparison between the retail prices of a representative shopping basket of goods and services. The trimmed mean is calculated as the weighted mean of the central 70% of the quarterly price change distribution of all CPI components, with the annual rates based on compounded quarterly calculations.