AUD/USD: Trading the Australian CPI Apr 2012

The  Australian CPI (Consumer Price Index), which is released each quarter, is an inflation index which measures the change in the price of goods and services charged to consumers. A reading which is higher than the market forecast is bullish for the Australian dollar.

Here are all the details, and 5 possible outcomes for AUD/USD.

Published on Tuesday at  1:30 GMT.

Indicator Background

Analysts consider CPI one of the most important economic indicators, and the release of the  Australian CPI can affect the direction of AUD/USD. If inflation is considered too high or too low, the central bank may intervene by adjusting interest rates, which will also effect the local currency.

The CPI reading for Q4 of 2011 was a flat 0.0%. This is certainly a cause for concern, as this was the lowest reading since January 2009, and also marks the third consecutive decline by the index. The markets are,  however,  predicting a jump of 0.8% in Q1. Will the index meet or beat this prediction?

Sentiments and levels

AUD/USD has been on a clear downward spiral since the end of February.  The weak Australian economy and slower growth in China continue to take their toll on the Australian dollar. Moreover, with weak employment data in the US and the  markets wary about developments in  Spain, investors  may look to park their assets in  safe haven currencies, like the US dollar, at the expense of minor currencies like the Australian dollar. Thus, the overall sentiment is bearish on AUD/USD towards this release.

Technical levels, from top to bottom: 1.0525, 1.0402, 1.0340, 1.0230, 1.0080, and 1.00.

5 Scenarios

1. Within expectations: 0.5% to 1.1%. In this scenario, AUD/USD could show some slight fluctuation, but it is likely to remain within range, without breaking any levels.
2. Above expectations: 1.2% to 1.5%: A  stronger reading than predicted  could push the pair above one resistance line.
3. Well above expectations: Above 1.5%: An unexpectedly sharp rise in inflation could push AUD/USD upwards, with two or more lines of resistance at risk.
4. Below expectations: 0.1% to 0.4%: A lower than expected reading could pull the pair downwards, with one support level at risk.
5. Well below expectations: Below 0.1%: A reading at zero  or in negative  territory  could result in the pair breaking two or more support levels.

For more on the Aussie, see the AUD/USD forecast.