AUD/USD: Trading the CPI Release

The quarterly release of Australia’s CPI will be a major market mover for AUD/USD on any result. Here are the details about this highly anticipated release and 5 possible scenarios for the outcome and the expected reaction in AUD/USD.

Indicator Background

Australian Consumer Price Index will be released on Wednesday, April 27th, at 1:30 GMT. Australia is one of the very few countries that releases inflation numbers on a quarterly, rather than a monthly basis. Global inflation is on the rise, with more central banks raising the rates, most notably, the ECB.

The RBA has already raised the interest rate 6 times since the beginning of the financial crisis, but has taken a long pause, as the rate hikes managed to cool the housing sector. A fresh rise in prices, driven by commodities will drive Glenn Stevens and company to move on the rates.

2010 has seen relatively modest price rises, falling short of expectations 3 out of 4 times, with an especially modest rise in Q4: only 0.4%, showing that inflation is under control.

The fist quarter of 2011 will likely be different: prices are expected to rise by 1.2% – a much faster pace. These expectations are based on Australia’s growing economy, the aforementioned rise in commodity prices and the recent release of the Producer Price Index for Q1, which exceeded expectations and rose by 1.2%.

Sentiment and Technical Levels

The Aussie made a sharp move higher, and then took a break. Last week, it made another move higher but again, took a small break. The rise remains rather healthy, and the market leans towards more gains in AUD/USD. Note that the  upcoming rate decision in the US, due on the other side of Wednesday might make reactions somewhat subdued.

Technical levels of support and resistance, from top to bottom: 1.0850, 1.0775, 1.07, 1.0580, 1.05, 1.04, 1.0315, 1.0254.

5 Scenarios

1. Within expectations: 1% – 1.4%. In this case, the Aussie moves up gently, with a good chance of staying within range.
2. Above expectations: 1.5% – 1.9% – AUD/USD pushes forward, and is likely to break resistance and settle on higher ground.
3. Well above expectations: 2% or higher – AUD/USD is likely to leap, breaking at least one levels of resistance.
4. Below expectations: 0.6% – 0.9% – in this case, the Aussie is likely to shake and lose some ground, probably within range.
5. Well below expectations: 0.5% or less: AUD/USD is set to fall, likely to lose support.

For more technical levels, events and analysis, see the  AUD/USD forecast.