Australia’s Inflation Beats Expectations. What’s Next?

Oct 26, 12:49 pm
Australian dollar

During the Asian session today, all eyes were on inflation figures from Australia which, unlike other nations, publishes inflation data on a quarterly rather than monthly basis. Today’s figures showed a positive surprise, which sent the Aussie higher across the board. Why? And what do we know? The answers are below.

Definition

Consumer Price Index: Change in the price of goods and services purchased by consumers. Although this data is extremely late relative to inflation data from other countries, it's the primary gauge of consumer prices and tends to create hefty market impacts. The average price of various goods and services are sampled and then compared to the previous sampling.

Why This Is Important

Consumer prices account for a majority of overall inflation. Inflation is important to currency valuation because rising prices lead the central bank to raise interest rates regardless of their inflation containment mandate.

Outcomes

The Quarterly CPI in Australia came in much better than expected, rising by 0.7% in Q3 of this year, compared to 0.4% in Q2, while estimates pointed to a rise by 0.5%. Moreover, this is the second monthly increase in a row, the highest inflation rate of this year, and the highest since Q2 of 2015.

Australia CPI

What Do We Know

Today’s inflation data eases the chances for a rate cut by the Reserve Bank of Australia any time soon, at least until the end of the year. The Current Implied Probabilities for the RBA rate cut have fallen back below 35% chance until September of next year. Meaning, traders are not pricing in any rate cut anytime soon. Therefore, the Aussie has been facing higher demand since the announcement of the data.

Technical Point of View

The Aussie has been rising since the beginning of the year. Despite the fact that the currency had a bumpy rise in April through May, it managed to recover and stabilize around the 0.76 area. In the meantime, the pair is testing the 0.77 solid resistance level which has been maintained since August of this year. Today’s inflation data can be considered a good catalyst for a break above that resistance in the coming hours. If so, another push above 0.78 could be seen to retest the high of this year, which is at 0.7835.

audusd 26 oct 2016

Levels To Watch in AUD Pairs

Symbol

S3

S2S1PivotR1R2

R3

AUDUSD

0.7534

0.75600.76030.76290.76720.7698

0.7741

AUDJPY

78.27

78.6979.1979.6180.1180.53

81.03

AUDCAD

1.0001

1.00461.01271.01721.02531.0298

1.0379

AUDNZD

1.0562

1.05981.06361.06721.07101.0746

1.0784

GBPAUD

1.5545

1.56911.58151.59611.60851.6231

1.6355

EURAUD

1.4062

1.41321.41861.42561.43101.4380

1.4434

AUDCHF

0.7444

0.74910.75480.75950.76520.7699

0.7756

 
Nour Eldeen Al-Hammoury

Nour Eldeen Al-Hammoury has more than ten years of experience in focusing on foreign exchange and global economic developments, as well as central bank policies and intermarket analysis (global markets relationships). Nour Eldeen is a regular on many major TV networks (several times each) such as: BBC Radio, BBC World News, Al-Jazeera, Al-Hurra TV CNBC Europe, CNBC Asia, CNBC Arabia, Al Arabiya, Bloomberg, Russia Today, Dubai TV, Sama Dubai, Skynews Arabia, Qatar TV and Future TV News.