The 0.9400 level has been a magnet for AUD/USD for the past 6 weeks. The risk trade isn’t having the same effect on the pair as it did a couple years ago and the central bank has clearly shifted to the sidelines.
The market is still pricing in a slight chance of a rate cut from the RBA over the coming year but that could all change with the inflation report due at 0130 GMT (9:30 pm ET).
The market is expecting 3.0% y/y inflation and 2.7% in the core (trimmed mean). The Q2 inflation report from New Zealand disappointed and signaled a top in NZD/USD. Then again, Australian hasn’t had the same persistent FX strength as New Zealand so there’s a chance of an upside surprise.
The range on the consensus is 2.9% to 3.3%.
There is some chatter about Stevens comments yesterday (or lack thereof). He said nearly nothing — is that a sign that inflation numbers were high and he didn’t want to whipsaw AUD traders by jawboning?. Or is it a sign that he’s confident the market will do the work for him on a soft inflation report?
I lean to Option 1 but that’s hardly the basis for a trade.
The technicals don’t tell us much. At 0.9394, AUD/USD is smack in the centre of the six-week range of 0.9322 to 0.9505. In the longer-term we climbed above the 61.8% retracement of the Oct-Jan decline. AUD/USD has also remained above the 55-dma. Together that points to some gains but the signal isn’t strong enough to risk a soft CPI headline.
AUD/USD daily
I like going with the headline on a miss, especially if it’s significant. Keep a close eye as we get to the range extremes and add on a breakout or cut it if the momentum fades and the 0.9400 magnet kicks in again.
