Australian Q4 CPI is out at 0030GMT, here’s the earlier preview, and here’s Adam’s even earlier.
New Zealand Q4 CPI came out yesterday, higher than expected, which sent the kiwi flying. The main points:
- annual increase in the CPI the highest since March 2012 quarter
- ‘Tradeables’ inflation -0.5% q/q. this is not as much of a fall as was expected. Says Westpac: “Most of the surprise relative to our forecast was in tradeables inflation, particularly airfares, household items and recreational goods. This points to muted pass through from the strong exchange rate”
- tradables inflation fell the most since 2007
- On the other hand, Non-Tradables came in at +0.5%, accelerated the most since the Q3 of 2011
- Q4 CPI is often seasonally weak, so today’s higher than expected is somewhat a surprise
On Monday we got the TD Securities/Melbourne Institute inflation gauge for December, and that too came in higher. The main points:
- The annual pace of this measure is now above the mid-point of the RBA’s inflation target 92 – 3% is the target, so 2.5% is the mid-point)
- Note that December is seasonally strong, so some care needs to be taken with this strong reading. Thou, it is still a strong reading
- The ‘trimmed mean’ for this gauge was +0.4% m/m and +2.9% y/y
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So, it would appear that the risk for today’s Australia Q4 CPI is to the topside.
Note that the ‘trimmed mean’ measure (which is the ‘core’ rate of inflation, and is the number the RBA focuses upon) read at 2.3% y/y in Q3. It will take a decent-sized surprise to get this above the mid-point of the RBA’s target band. If it does get to 2.5 or above today, though, it will act a constraint on the RBA’s potential to ease further in the near-term, should they so wish to do so.
The RBA is still looking down the barrel at:
- An economy growing below potential
- Wages growth is sluggish
- Employment figures looking poor
- Also, from last week, some positives: Quick look at the Aussie economy ahead of today’s employment figures – where we at with recent data?
So, if the CPI comes in stronger than expected the danger side is for the AUD to rally. There are plenty of shorts about at poor trade locations, and above 0.8830 should see further scrambling for cover. I suspect we’ll run into sellers soon enough on a rally, though – say 0.8875/80, even 0.8850/55, then 0.8900. That’s what the orderboard is saying at present (I’ll be back with a fuller look soon)
If inflation comes in tame, though, around or below expectations, then its likely we see another sagging in the AUD. Bids ahead of and around 0.8750 have held it on the downside so far, they are still there.
