When is the China CPI/PPI reading, and how could it impact the AUD/USD?

China CPI/PPI overview

Early Tuesday sees China's CPI/PPI dual viewing at 01:30 GMT, and Asia-session markets are bracing for an expected slowdown in the producer's index, with the annualized figure forecast to come in at 3.5% (previous 4.1%), while the consumer price index is expected to tick upwards slightly to 2.5% (previous 2.3%). Trade war impacts are high on traders' lists of potential downside plays, and China's inflation reading for Tuesday can be expected to carry more weight than normal as markets brace for extending fallout, with a slowdown in China's domestic economic boding poorly for its closest trading neighbors, specifically Australia.

Analysts largely expect rising fuel costs and food prices to play a key role in keeping inflation on-balance, with HSBC noting that, "we forecast CPI inflation of 2.7% y-o-y in September, up from 2.3% y-o-y in August. Food prices likely continued to rise at a faster pace, reflecting the lagged impact of weather disruptions and swine fever. Meanwhile, the NDRC adjusted retail gasoline prices higher in September, which likely also put upward pressure on the headline reading."

How could it affect the AUD/USD?

Aussie traders are bracing for a benign inflation reading from China, which could easily overshadow the day's RBA Meeting Minutes showing, as Australia's stability is hinged largely on China's domestic growth cycle, and a missed reading here could see the AUD fall back into retreat, while a bullish continuation could be on the cards if China's dataset manages to shrug off trade war fears. As noted by FXStreet's own Valeria Bednarik: "The short-term technical picture offers a mixed outlook, given that in the 4 hours chart, the price is above a bullish 20 SMA but below bearish 100 and 200 SMA, with the distance between moving averages shrinking and the price trapped in-between, a sign that clearer definitions are not far away. Technical indicators in the mentioned chart retreated from daily highs, but hold within positive ground, limiting chances of a downward extension, at least as long as the price holds above the 0.7080/90 price zone."

Support levels: 0.7085 0.7040 0.7010 

Resistance levels: 0.7140 0.7175 0.7200

Key notes

AUD/USD analysis: holding on to gains ahead of RBA Meeting's Minutes

Australian Dollar awaits RBA Minutes

Insights for the Asian Forex trading session Tuesday

About the 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 the 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.