We will get the latest Australian inflation update on Wednesday, which could have a significant short-term impact on the Australian dollar this week. Check out all the important data to consider before putting together your latest trading idea!
Focus on the event:
Australia’s quarterly consumer price index for the first quarter of 2023
When will it be released:
April 26, 2023, Wednesday: 1:30 a.m. BST, 2:30 a.m. London time, 10:30 a.m. Tokyo, 9:30 p.m. (25 April) New York
Expectations:
Australian CPI YoY: 6.8% expected vs. 7.8% prior
Australian CPI Q/Q: expected 1.2% vs. 1.9% prior
Related data since the last data event/release:
- Australian Manufacturing PMI Survey for March: Respondents said that price pressures eased in March as both input cost and output price inflation declined.
- Australian Bureau of Statistics February CPI report: 6.8% YoY vs. 7.4% YoY in January
- Australia Composite PMI for February: “Price pressures eased most in service industries yet remained elevated, while manufacturing price indices barely moved in February. Although moderating, price indices continue to point above inflation target in 2023.”
Previous issues and the impact of the risk environment on the pound sterling
January 25, 2023
Event Results/Price Action:
The main update to the Australian CPI for Q4 2023 came in hot as it was above expectations (+1.6%QoQ) and the Q3 reading (+1.8%QoQ) came in at 1.9%QoQ. The annualized rate rose to 7.8% vs. 7.3% previously. The Australian dollar immediately jumped against all major currencies to intra-week highs after the release.
Risk Environment and Internal Market Behaviors:
Intermarket price action was relatively mixed this week in January, but broad risk appetite appeared to favor risk-based behavior as stock, cryptocurrency and bond yields ended the week higher, while gold and the US dollar were flat. This likely reflects speculation that the Federal Reserve may slow down the pace of interest rate hikes after a series of weaker-than-expected US economic updates.
October 26, 2022:
Event Results/Price Action:
The main update to the Australian CPI for the third quarter was in line with the previous quarter’s reading (+1.8% qoq) at 1.8% qoq; While the annual rate increased to 7.3%, compared to 6.1% previously. It seems that this was enough to sustain speculation of another rate hike from the Reserve Bank of Australia at the time, which is characterized by the rise of the Australian dollar during the London and US sessions.
Risk Environment and Internal Market Behaviors:
Broad market volatility this week in October was largely influenced by weaker-than-expected data from China and the United States, which reinforced central banks’ argument for slowing the pace of monetary policy tightening.
This notion was likely the reason why price sentiment was mainly risk-averse, due to higher stocks and oil prices against the red close in gold, US dollar and bond yields.
Price action odds:
Possibilities of feeling risky:
The broad market focus this week will likely be on the latest global CPI and GDP updates, and based on the economic calendar, expectations are that both economic metrics will come in lower than the previous readings on the grid.
If we do indeed see inflation rates and GDP lower, that makes the argument for central bank slowdown tightening (or even pivoting), but it also increases recessionary expectations.
Based on recent price action, recession fears seem to be the biggest influence, so this week’s economic updates are likely to push risk assets lower overall.
Now, there is a possibility that inflation updates may surprise to the upside, as we saw in the UK last week, which could shift broad focus to the inflation data/ monetary policy consequences of the session.
Australian dollar scenarios:
Possible base scenario:
Based on the past two releases, this is likely to be a very volatile event for the Aussie and strong odds for a directional bias.
With expectations of a slowdown in Australian CPI, and broad markets likely to back off risk with an eye on recession fears, the Aussie could see pressure this week, even before the CPI event.
In this potential bearish scenario for the Aussie, take a deeper look at AUD/USD and EUR/AUD for short AUD technical opportunities and setups, as both the Fed and the ECB are seen as being aggressive in fighting inflation at the moment.
Possible alternative scenario:
In the low probability Australian inflation scenario, watch for the Australian dollar to rally, even if the overall risk sentiment is negative overall.
In this scenario, the rally is likely to be short-lived as traders may take some quick profits on the sharp rally given the recent negative turn on the Australian dollar over the past week.
In addition, if we see that the general risk sentiment is positively skewed towards a new catalyst, this may be the best position to look at long AUD opportunities against “safe havens” i.e. check the charts in AUD/JPY and AUD/CHF to see what If any technical settings appear.