The Reserve Bank of Australia will give its next monetary policy decision next week!
Could this week’s Australian CPI report influence the central bank’s decision?
Here are points to know if you plan to trade Australia’s annual CPI data:
Focus on the event:
Australian Consumer Price Index (CPI) and inflation data for May 2023
When will it be released:
June 28, 2023 (Wednesday), 1:30 a.m. BST
Use our forex market hours tool to convert GMT to your local time zone.
Expectations:
- Core Consumer Price Index (CPI) YoY: +6.2% YoY vs. +6.8% YoY
Related data since the last data event/release:
- Unemployment rate in Australia Decreased from 3.7% to 3.6%, with Net Employment +75.9K (vs. 18.6K expected, -4.0K prior) as vacancies increase and demand for skilled labor rises
- Ai group Australian Industry Index It showed employment, input prices, the sales price index, and the average wage index all declined in May
- Judo Bank Australia Services PMI For the month of May: 52.1 vs. 53.7 previously; “Input cost inflation was at its lowest since October 2021“
- Melbourne Institute Inflation Scale It jumped from 0.2% to 0.9% in May
- The Melbourne Institute’s Consumer Expected Inflation Rate Accelerating from 4.6% to 5.0% in May
- Judo Australia Manufacturing Bank PMI In May: 48.4 compared to 48.0 in April; The third consecutive reading of deflationary conditions
- Flash Manufacturing PMI in Australia It was unchanged at 48.0 in May, blinking PMI Services It decreased from an upgraded reading of 53.7 to 51.8 to reflect slowing industry expansion
- RBA meeting minutes May It kept the door open for rate hikes, as policymakers remain wary of the risks of higher inflation
- in that May expectationsThe Reserve Bank of Australia lowered its year-end 2023 inflation forecast to 4.25% from its March estimate of 4.0%.
Previous issues and the impact of the risk environment on the Australian dollar
May 31, 2023
Overlay the Australian dollar against major currencies Graphics by TV
Event Results/Price Action: Australia’s monthly consumer price index rose to 6.8% yoy in April after slowing to 6.3% in March. It turns out that the rapid growth in transportation prices contributed to printing the consumer price index for the first acceleration since December 2022.
The Australian dollar initially rallied on the news. However, the RBA’s tight bets on global growth concerns were tempered when China slipped not one, but two disappointing PMI reports.
The Aussie made fresh lows intraday and throughout the week until some optimism in the second half of the US session inspired risk rally. Much like the April 26 release, the AUD’s intraday lows marked the bottom of the week for the comedol.
It wasn’t until RBA Governor Lowe stressed that he was serious about tackling high inflation and China released a strong Caixin PMI report indicating that the Australian dollar saw a bullish reversal during the week.
Risk Environment and Internal Market Behaviors: Risky assets such as the Australian dollar had a hard time gaining traction in the first half of the week when traders worried that the debt ceiling deal reached over the weekend would pass a congressional vote. It also did not help China to print weak PMI reports and cast doubts on the global economic recovery.
Sentiment turned positive in the back half of the week, likely due to several impacts including speculation “skipping the June rate hike”, better-than-expected Chinese PMI update, and US passing its debt ceiling bill which dampened interest rates. The risk of a US debt default. .
April 26, 2023
Australian Dollar Pairs Overlay: 1-Hour Forex Graphics by TV
Event Results/Price Action: Monthly CPI came in at 6.3% from a year ago in March, down from February’s 6.8% increase and below the expected reading of 6.5%. The 6.3% CPI also posted the smallest increase since May 2022 and the third consecutive month of cooler inflation.
Traders who were already expecting a weaker CPI – and were pricing in a less hawkish RBA decision due the following week – got another impetus.
The Australian dollar fell to fresh intraday (and intraweek) lows until the middle of the Asian session when the comedols ranged and found intraday lows against their major peers.
Risk Environment and Internal Market Behaviors: Jitters in the global banking sector and concerns about a US debt default and recession had traders already selling “risky” high-yielding bets such as the Australian dollar even before the report was released.
Upbeat earnings and positive reports from European banks helped pull the Australian dollar off its lows during the week, but the prospect of the RBA being less hawkish in the following week limited the Aussie’s bounces.
Price action odds:
Possibilities of feeling risky: Based on the price performance in Asia and Europe today, it appears that traders remain concerned about a potential recession in the Eurozone and China, political turmoil in Russia, and the impact of aggressive rate hikes on global growth prospects.
On Tuesday, the tone for risk and volatility may change ahead of the Australian CPI event as we pick up potential catalysts from the economic docket. ECB President Lagarde is scheduled to speak at the ECB Forum on Central Banks, Canada is to release its latest CPI update, and the US is to release updates on durable goods, home prices and consumer confidence.
With such a wide range of catalysts, there is low confidence as to what to expect from the risk environment will be around the Australian CPI update, but our best guess is that the US Consumer Confidence data may be the biggest catalyst in that group. Watch for this to set the tone going into the Asia session.
Australian dollar scenarios:
Possible base scenario: We know from the last two releases that the Aussie’s initial reaction is directly related to the data release. A higher expected CPI should encourage hawkish bets and Aussie buying while slower inflation should encourage short-term selling.
Based on some of the leading indicators and current market expectations, it is possible that we will see slower CPI growth in May.
Be more aware of general risk sentiment. Rising CPI and the prospect of further rate hikes from the RBA could fuel global growth concerns and possibly impact the Australian dollar.
If markets’ interpretation of the CPI release fits global growth concerns, it is best to look for AUD setups against safe havens such as the US dollar and the Japanese yen, especially if risk sentiment continues to be risk-on.
Possible alternative scenario: I don’t know if you noticed that the Aussie sell-off started to pick up steam in mid-June when we found out that the RBA’s June rate hike decision was “quite balanced” and not decisively hawkish.
If traders get past their concerns about global growth, and if Australia’s May CPI comes out higher than expected, we’re likely to see the Aussie regain some pips on short covering and fundamental biases, especially against other currencies like the NZD and CAD.
Just note that, as in the last two releases, the Australian dollar’s reaction to the CPI report may be limited to the end of the Asian and European sessions.