Headed forex traders! Australia Lowers Annual Inflation Reading For April Soon!
Will recent prices support ‘peak’ inflation speculation? More importantly, how might the outcome affect the RBA’s next monetary policy decision?
Here are some points to note if you plan to trade a Wednesday release:
Focus on the event:
Australian annual consumer price index for April 2023
When will it be released:
May 31, 2023 (Wednesday), 1:30 a.m. BST
Use our forex market hours tool to convert GMT to your local time zone.
Expectations:
Australia CPI Monthly (YoY): 6.4% expected vs. 6.3% prior
Related data since the last data event/release:
- retail April: 0.0%m/m (expect -0.2%m/m) vs. 0.4%m/m in March
- Employment rate of change In April, it showed a surprising 4.3k in employment losses against an estimated gain of 24.8k, the previous reading rose from 53k to 61.1k in employment gains, the unemployment rate rose from 3.5% to 3.7%
- Judo Bank Australia PMI Services The business activity index rose from 48.6 to 53.7 – its fastest pace in a year – in April
- Goods’ prices Decreased 19.2% year-on-year in April versus a previous drop of 6.9% due to lower coal, iron ore and LNG prices
- MI inflation scale It slowed from 0.3% m/m to 0.2% in April to reflect weak price pressures
Previous issues and the impact of the risk environment on the Australian dollar
April 26, 2023
Overlaying the Australian dollar against major forex: 1-hour forex Planned by TV
Event Results/Price Action: Annual inflation came in at 6.3% in March, down from February’s 6.8% and estimated reading of 6.5%. There was also a quarterly reading this time and it showed a growth of 1.4% in the first quarter after a 1.9% rise in the fourth quarter of 2022.
Traders were anticipating a further slowdown in Australian CPI reports, so the actual release saw a popular buy and sell news situation in the first 30 minutes.
The Australian dollar quickly hit intraday lows as more traders priced in another month of rate hikes from the Reserve Bank of Australia. The Japanese yen was only capped today lower against the Aussie even if the AUD crosses saw some risk taking/profit taking in the early US trading session.
Risk Environment and Internal Market Behaviors: The possibility of the RBA holding interest rate hikes for longer came at a time when traders were also looking into the US recession and banking sector jitters.
The Aussie probably won’t lose as many pips on the CPI report if concerns about First Republic Bank’s $72 billion depositor withdrawal don’t spook the markets in the previous US session.
March 29, 2023
Overlaying the Australian Dollar Against Major Foreign Currencies: 1-Hour Forex Planned by TV
Event Results/Price Action: Australian CPI showed an annualized reading of 6.8% in February, slower than the expected growth of 7.1% and January’s reading of 7.4%.
The slowdown, helped in part by slow increases in housing, food and transport costs, has fueled speculation that Australian inflation has “peaked” enough for the RBA to begin to stop raising interest rates.
The Australian dollar broke below the ranges of the Asian session and saw bearish trends during the day that did not subside until the risk support during the US session.
Risk Environment and Internal Market Behaviors: It was easy to buy Australian dollars at the time thanks to optimism in the Chinese tech sector and easing banking sector concerns.
But the lack of ongoing market themes and fresh stimulus made it easier to price in the less hawkish RBA after the release of the CPI report.
Price action odds:
Possibilities of feeling risky:
Those about to trade today appreciate their optimism that US lawmakers have reached a tentative debt deal that would hold the cap until Jan. 1, 2025; This sentiment is likely to continue into Tuesday as traders return from vacation.
But the tide may turn against risk bets such as Australian dollars Traders are shifting their focus to inflation and job updates which may prompt the Fed and European Central Bank (ECB) to remain hawkish on monetary policy. This scenario could trigger some profit-taking as risky assets rose since last Thursday. Also, expectations of further tightening amidst shaky economic activity may affect risk sentiment as well and push the Australian dollar into bearish trends during the week.
Ditto for debt ceiling concerns, which could resurface if the interim deal doesn’t appear to be passed before the June 5 Treasury Department deadline, a possibility where there may be politicians who aren’t too happy with certain aspects of the deal (including Maximum discretionary spending limits and no debt limit for two years).
Australian dollar scenarios:
Possible base scenario:
Based on the recent releases, the odds seem very good that volatility and momentum will pick up in the Australian dollar. Given that the last three releases came in slower than market estimates, and that related economic releases point to smaller price increases, the annual CPI for April may have come in lower than expected at 6.4%.
Reducing hawkish bets could see the Aussie retreat from its gains that began late last week.
In this scenario coupled with a potential shift to risk off conditions later this week if we see negative catalysts, the Australian dollar could see losses against safe havens such as the US dollar and Japanese yen and/or currencies with hawkish central banks such as the euro.
Possible alternative scenario 1:
In the last two releases, a weaker-than-expected CPI has created an already adverse trading environment for Australian dollar prices that likely contributed to the sustained dollar price reaction.
If the weak CPI report comes out during a risk friendly trading environment, the highs/lows of the event candlestick can be used as an intraday turning point before the price moves in the way of the overall risk sentiment.
Relative trading Volatile AUD pairs (such as AUD/USD, AUD/JPY, AUD/CHF) with short term risk management plans may work if you expect a reversal from the initial Australian dollar reaction.
Possible alternative scenario 2:
If the annual CPI for April surprises and registers above 6.4%, the Aussie could see an upward run against its peers as no one is really expecting this data.
Long positions intraday against currencies with less hawkish central banks such as the New Zealand dollar, the Canadian dollar and JPY It may succeed in the event of a stronger than expected CPI report.
