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Aussie CPI preview - what to expect in AUD/USD?

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Jan 26, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

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    FXStreet (Guatemala) - AUD/USD has been correcting the downside play of 2016, but a full on reversal is yet to be seen and while oil continues to dominate, and as illustrated it is not about to make a reversal anytime soon given the recent API inventory numbers, the Aussie price action will likely remain better offered. Oil will be a major component in today's Australian Q4 CPI numbers.

    AUD/USD has recently recovered through the 100 sma on the 4hr chart and up from the double bottom from the region of 0.6830 topping out 0.7046 last week. Commodities have been in the driving seat along with sentiment around China and global stocks while the calendar has been relatively absent of domestic data for Australia of late.

    Aussie CPI

    However, today we get back to business with Q4 CPI released at 11:30am Syd/8:30am Sing/HK. The consensus is 0.3% Q/Q and 1.6% y/y. While oil will be a major factor in the data, analysts at Westpac note there will be contributions from holiday travel, tobacco and house purchases that could all offset the significant decline in fuel prices.

    "Our forecast for average core inflation is 0.6% q/q and 2.2% y/y. Overall, it is a very muted quarter and we see downside risks," explained the analysts, adding, "While the Bloomberg median estimate is 0.5% for trimmed mean (the most market sensitive measure), the mode is 0.4% and more expect 0.6% than 0.5%. This suggests we'd need to see 0.3% or 0.7% for a reasonably large AUD reaction. Markets are currently pricing in 17% chance of an RBA cut in Feb and a full cut priced by Aug."

    In respect to the RBA, Srimoyee Pandit, fundamental analyst at FXStreet explained, "The RBA left its cash rate unchanged at 2 per cent in December and declared its intention to continue with its accommodative policy. "While keeping rates steady, the central bank reiterated that low inflation gave them scope to ease further if a further rate cut was required to support growth."

    AUD/USD levels to monitor

    AUD/USD was capped tested the 0.7020 but was capped there on the oil inventories and now leaves the downside exposed ahead of the CPI data. The cluster of the 20, 100 and 50 sma's on the hourly is natural target for the price in the downside, accumulating circa 0.6978. On the data, upside surprises will see a retest of the 0.7020 level guarding 0.7045. But given CPI is not an immediate factor to instigate the RBA to act one way or another the upside is limited above the 200 sma on the 4hr at 0.7105. To the downside, the price remains better bid above the support line at 0.6911/30 (S2/4hr sma50). A break of 0.6918 exposes 0.6875 20 Jan lows ahead of 0.6827 2016 low.

    AUD/USD levels to monitor

    AUD/USD was capped tested the 0.7020, but was capped there on the oil inventories and now leaves the downside exposed ahead of the CPI data. The cluster of the 20, 100 and 50 sma's on the hourly is natural target for the price in the downside, accumulating circa 0.6978.

    On the data, upside surprises could see a retest of the 0.7020 level guarding 0.7045. But given CPI is not an immediate factor to instigate the RBA to act one way or another right away, the upside could be limited above the 200 sma on the 4hr at 0.7105. To the downside, the price remains better bid above the support line at 0.6911/30 (S2/4hr sma50) and could be an opportunity to buy on dips. But, a break of 0.6918 exposes 0.6875 20 Jan lows ahead of 0.6827 2016 low.
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