Inflation in Australia is not as strong as expected. All the figures for the first quarter fell short of expectations. coupled with yet another weak read from China, the Australian dollar was hit hard.
AUD/USD is trading around 100 pips lower than before the publication, down three trading ranges. Front running the publication with a rise just provided a sell opportunity it seems.
Here is how it looks on the chart, where we can see the rise that came just before the big fall:
The data
Headline Consumer Price Index) was expected to rise 0.8% quarter over quarter, like in Q4 2013, but fell short with a rise of only 0.6% in Q1 2014. Year over year, the pace of inflation rose from 2.7% to 2.9%, short of 3.2% expected.
Core inflation, known in Australian as the RBA trimmed mean CPI, rose by 0.5%, short of 0.7% expected and below 0.9% in the previous quarter. Y/y, core inflation remains at 2.6%. It was expected to increase to 2.9%.
Analysis
The weaker inflation data means that the RBA can remain calm and leave its neutral bias intact. There is no need for a rate hike anytime soon.
It seems that the Australian dollar has found the Goldilocks territory where it is low enough to keep exports flowing but not too low to trigger scary inflation.
15 minutes later, a key indicator from China did not help either. The independent and highly regarded HSBC Manufacturing PMI for April, rose from 48 to 48.3 points, slightly short of 48.4 expected. While this is a small miss, it is the fourth consecutive month that the figure is below 50 points that separate contraction from growth. A not-really-growing Chinese economy is not good news for Australia.
The fall
AUD/USD broke below the 0.9350 line it conquered earlier and quickly fell all the way to 0.9270. Further support awaits at 0.9220. Immediate resistance is at the round number of 0.93.
For more, see the AUD to USD prediction.
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