Australian CPI overview
Early on Wednesday, at 00:30 GMT, markets will see the 2021’s third quarter (Q3) inflation data for the Australian economy.
The headline Consumer Price Index (CPI) QoQ is likely to stay unchanged around 0.8% but the YoY figures may ease to 3.1% versus 3.8% previous readouts.
On the contrary, the Reserve Bank of Australia's (RBA) trimmed-mean CPI is expected to rise from 1.6% to 1.8% on a yearly basis while likely staying unchanged at 0.5% on QoQ.
Although the latest RBA meeting minutes stated that an inflation target of 2-3% will not be hit until 2024, the policymakers’ concerns over rising inflation highlight today’s CPI data for AUD/USD traders.
Ahead of the release, TD Securities said,
We are more hawkish on inflation in Q3 and expect CPI inflation to rise to 1.0% q/q, 3.3% y/y (mkt:0.8% q/q, 3.1% y/y) from 0.6% q/q, 1.1% y/y in Q2. In Q3, new dwelling prices are expected to rise sharply as the dampening effect from the HomeBuilder grants fades, while transport costs are expected to increase notably due to higher fuel and motor vehicle prices. Supply-chain disruptions globally may also result in broad-based inflationary pressures which could push CPI trimmed mean inflation to 0.6% q/q, 1.9% y/y which is close to RBA 2% target. If our forecasts are correct, a pickup in inflation momentum, despite strict state-level lockdowns, should put the RBA's dovish inflation outlook in question with more pain for AUD front-end rates to come.
How could it affect the AUD/USD?
AUD/USD prints a three-day uptrend around 0.7510 ahead of the stated inflation data on Wednesday. The risk barometer cheers the mildly bid S&P 500 Futures to remain firmer amid a so-far quiet Asian session. However, firmer US Dollar Index (DXY) and recently rising inflation expectations seem to probe the AUD/USD bulls of late.
Hence, any surprise uptick in either the headlines CPI or the RBA Trimmed Mean CPI becomes necessary for the AUD/USD bulls to keep the reins. In absence of this, the RBA policymakers’ rejection of the reflation fears may dent the Aussie upside amid the caution mood before the advance estimation of the US Q3 GDP.
Technically, the monthly support line of around 0.7495 keeps the AUD/USD buyers hopeful amid bullish MACD signals. However, a convergence of 200-DMA and a four-month-old resistance near 0.75460-65 becomes a tough nut to crack for them.
About the Australian 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 purchasing 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).
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