AUD/USD: Trading the Australian CPI Jul 2011

Australia publishes inflation numbers only once per quarter. This low frequency release of a key indicator for rate moves, makes it a big market mover. Here are the details for the upcoming release, and 5 possible scenarios for AUD/USD.

Published on Wednesday at 1:30 GMT.

Indicator Background

There are various independent measurements of inflation, such as the Inflation Gauge published by the Melbourne Institute, but nothing compares to the real thing.

In Q1 2011, prices surprised with a jump of 1.6%, raising the stakes for a rate hike that never came. Since then, the Australian economy slowed down, and commodity prices eased as well. So, expectations are lower this time – a rise of only 0.7% is expected.

On the other hand, we already have a hint from producer prices. Australian PPI, also published only once per quarter, rose by 0.8%, exceeding expectations for a rise of only 0.6%. In addition, the governor of the RBA, Glenn Stevens, expressed confidence in the Australian economy.

Does he know something that we don’t? Perhaps consumers kept pushing prices higher, more than expected, despite talks about the end of an “Australian housing bubble“. A result that is a little better than expected won’t come as a big surprise.

Sentiment and Technical Levels

The current sentiment is AUD/USD. Not only did we hear upbeat comments from Stevens, but on the other side of the Pacific, the debt ceiling talks are still  unfruitful. Even if a deal in the US is reached just before the publication, the Aussie still has a clear advantage.

Technical levels, from top to bottom: 1.11, 1.1021, 1.0921, 1.0888, 1.0775, 1.07.

5 Scenarios

1. Within expectations: +0.7% to +0.9%: In this case, the Aussie will rise, with a small chance of breaking above resistance.
2. Above expectations: +1.0% to +1.5%: A strong rise in price will boost AUD/USD and will likely send it to higher ground, above one resistance line, and not too far from a second one.
3. Well above expectations: +1.6% or higher: This scenario has little chance, but this would push for a rate hike and will likely send Aussie/dollar above two lines of resistance.
4. Below expectations: +0.3% to 0.6%: A slow rise in prices in Q2 will weigh on the Australian dollar. A drop is expected, but a fall below support has small chances.
5. Well below expectations: +0.3% or less: In this case, a rate cut will be on the cards. A drop below support is very likely.