Heads up forex traders! Australia is dropping April’s annualized inflation reading pretty soon!
Will the latest rate support “peak” inflation speculations? More importantly, how might the result affect the Reserve Bank of Australia’s (RBA) next monetary policy decision?
Here are points to note if you’re planning on trading Wednesday’s release:
Event in Focus:
Australia Annualized Consumer Price Index for April 2023
When Will it Be Released:
May 31, 2023 (Wednesday), 1:30 am GMT
Use our Forex Market Hours tool to convert GMT to your local time zone.
Expectations:
Australia monthly CPI (y/y): 6.4% forecast vs. 6.3% previous
Relevant Data Since Last Event/Data Release:
- Retail Sales for April: 0.0% m/m (-0.2% m/m forecast) vs. 0.4% m/m in March
- Employment change in April showed a surprise 4.3K in hiring losses versus an estimated 24.8K gain, the previous reading upgraded from 53K to 61.1K in employment gains, jobless rate up from 3.5% to 3.7%
- Judo Bank Australia Services PMI Business Activity Index shot up from 48.6 to 53.7 – its fastest pace in a year – in April
- Commodity prices slipped 19.2% year-over-year in April vs. an earlier 6.9% drop due to lower coal, iron ore, and LNG prices
- MI inflation gauge slowed from 0.3% month-over-month to 0.2% in April to reflect weaker price pressures
Previous Releases and Risk Environment Influence on the Australian Dollar
April 26, 2023
Overlay of AUD vs. Major FX: 1-Hour Forex Chart by TV
Event results / Price Action: Annualized inflation came in at 6.3% in March, lower than February’s 6.8% and the estimated 6.5% reading. There was also a quarterly reading this time and it showed a 1.4% growth in Q1 after a 1.9% uptick in Q4 2022.
Traders had been anticipating further slowdown in Australia’s CPI reports so the actual release saw a buy-the-rumor, sell-the-news situation in the first 30 minutes.
AUD soon made intraday lows as more traders priced in another month of rate hike pause from the RBA. Only the Japanese yen capped the day lower against the Aussie even if AUD pairs saw some risk-taking/profit-taking at the start of U.S. session trading.
Risk environment and intermarket behaviors: The prospect of a longer rate hike pause for the RBA came at a time when traders were also pricing in their U.S. recession and banking sector jitters.
AUD probably won’t lose as many pips at the CPI report’s release if worries over the First Republic Bank’s $72-billion depositor withdrawal didn’t spook the markets in the previous U.S. session trading.
March 29, 2023
Overlay of AUD vs. Major FX: 1-Hour Forex Chart by TV
Event results / Price Action: Australia’s CPI showed an annualized reading of 6.8% in February, which is slower than the expected 7.1% growth and January’s 7.4% reading.
The deceleration, helped in part by slower increases in housing, food, and transport costs, fueled speculations that Australia’s inflation has “peaked” enough for the RBA to start pausing from rate hikes.
AUD broke below its Asian session ranges and saw intraday downtrends that didn’t let up until risk-taking during the U.S. session supported the commodity-related currency.
Risk environment and intermarket behaviors: It was easy enough to buy AUD at the time thanks to optimism in China’s tech sector and easing banking sector fears.
But the lack of ongoing market themes and fresh catalyst made it even easier to price in a less hawkish RBA after the CPI report’s release.
Price action probabilities:
Risk sentiment probabilities:
Those who are around to trade today are pricing in their optimism that U.S. lawmakers have reached a tentative debt deal that would suspend the ceiling until January 1, 2025; this sentiment will likely carry on into Tuesday as traders come back from holiday.
But the tides may turn against risk-on bets like AUD as traders turn their focus to inflation and jobs updates that may prompt the Fed and the European Central Bank (ECB) to stay hawkish on monetary policy. This scenario may spark some profit taking on the rally in risk assets since last Thursday. Also, expectations of further tightening amidst shaky economic activity could weigh on risk sentiment as well and drag AUD to intraweek downtrends.
Ditto for debt ceiling concerns, which could resurface if the tentative deal doesn’t look like it will get passed before the Treasury Department’s June 5 deadline, a possibility as there may be politicians who aren’t too happy with certain aspects of the deal (including discretionary spending caps and no-limit to the debt for two years).
Australian Dollar scenarios:
Potential Base Scenario:
Based on recent releases, the odds seem pretty good that volatility and momentum will pick up in the Australian dollar. And given that the last three releases came in slower than market estimates, and that the relevant economic releases point to lower price increases, then April’s annual CPI may come in lower than the expected 6.4%.
The trimming of hawkish bets could pull AUD back from its upswings that started late last week.
In this scenario coupled with a potential shift to broad risk-off conditions later this week if we see negative catalysts, AUD could see losses against safe havens like USD and JPY and/or currencies with hawkish central banks like EUR.
Potential Alternative Scenario 1:
In the last two releases, a weaker-than-expected CPI fed into an already anti-AUD trading environment which probably contributed to AUD’s sustained price reaction.
If a weak CPI report comes out during a risk-friendly trading environment, then the highs/lows of the event candlestick may be used as intraday inflection point before price goes in the way of overall risk sentiment.
Trading relatively volatile AUD pairs (like AUD/USD, AUD/JPY, and AUD/CHF) with short-term risk management plans may work out if you’re anticipating a reversal from AUD’s initial reaction.
Potential Alternative Scenario 2:
If April’s annual CPI surprises and prints above 6.4%, then AUD may see an upward spike against its counterparts since no one is really anticipating this data outcome.
Intraday long trades against currencies with less hawkish central banks like NZD, CAD, and JPY may work in case of a stronger-than-expected CPI report.
