AUD/USD: Trading the PPI Release

Australia’s quarterly release of its Producer Price Index is due on April 21st, at 1:30 GMT. The frequency of this release in a world of rising inflation makes it of high importance, no matter the outcome. Here are the details and 5 scenarios for the outcome and AUD/USD reaction.

Indicator Background

Contrary to most countries, Australia published inflation data only once per quarter. This makes independent assessments, such as from the Melbourne Institute important, as they fill the gap. Also commodity and import prices shake the Aussie. Nevertheless, the official PPI and CPI numbers are the ones that determine monetary policy and are highly anticipated by the markets.

Consumer prices are of the highest significance, but the markets will have to wait 6 more days for this release, after Easter. So, PPI will rock the markets as the last significant event before the holiday.

2010 saw a first quarter of a strong 1% rise, a weak 0.3% rise in Q2, a strong +1.3% in Q3 and a 0.1% rise in Q4. This see-saw is likely to continue with a rise of 1% this time. Given the rise in global commodity prices a stronger rise of even 1.5% won’t come as a big surprise.

Sentiment and Technical Levels

After a wild ride, the Aussie consolidated in high range, but remains strong. The sentiment is slightly bullish on AUD/USD. The Australian dollar is backed by a strong economy at home and in its main trade partner, China. It also enjoys a high interest rate of 4.75%.

Technical levels of support and resistance, from top to bottom: 1.07, 1.0580, 1.05, 1.04, 1.0315, 1.0254, 1.0180.

5 Scenarios

1. Within expectations: 0.9% to 1.1%. In this case, the Aussie rises gently, most likely within range.
2. Above expectations: 1.2% to 1.5% – AUD/USD pushes forward, and has a good chance of breaking higher.
3. Well above expectations: 1.6% or higher – AUD/USD is likely to leap, breaking resistance and even reaching new historic highs.
4. Below expectations: 0.5% to 0.8% – in this case, the Aussie is likely to shake and lose some ground, probably within range.
5. Well below expectations: 0.4% or less: AUD/USD is set to fall, with an excellent chance of losing support.

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