Tuesday, July 26, 2011

Australia CPI (Consumer Price Index) Q/Q - 26 July 2011

Our plan to trade today´s CPI release out of Australia will be to look for opportunities for entry if we get a surprise in this release, here is the current forecast:
 
Data Release 9:30pm (NY Time)

AU CPI Q/Q  Forecast 0.7% Previous 1.6%
 
ACTION: AUD/USD BUY 0.9% SELL 0.5%

The Trade Plan
 
Here is the plan, if we get a better than expected CPI data, we should see an instant appreciation of AUD by at least of 40 pips within the hour, but if we get a worse than expected number, AUD should drop and we should expect the market to consolidate. Of course, the deviation that I am looking for must be at least 0.2%, or I will skip the after news trade...

On a minimum release of 0.9%, I would buy AUD/USD after a decent retracement. If we get a 0.5% or worse release, I´d SELL AUD/USD immediately, I would consider a spike trade on a better than expected release as recent gains in the AUD are screaming for a strong demand.

The Market
 
Australian economy is getting hit on all sides by inflation, with average wages on the rise plus higher commodity prices. Although the recent appreciation of AUD has helped RBA to balance inflation, most analysts are expecting some kind of reaction soon.

As RBA indicated that this CPI release will be crucial to its monetary policy, today’s CPI is already expected to be inline or slightly better than expected due to the PPI release on Sunday, which came out at 0.8%, or 0.2% better than expectation…

RBA has paused rates on the global debt crisis since December of 2010, with inflation reaching 2.6% on Core and 3.5% on the headline, RBA will start its rate hike cycle soon, as most analysts are calling the September meeting to be the first of many.

Additional Thoughts
 
With AUDUSD so close to 1.1000, on a better than expected CPI figure, I believe market may just push this pair there.

Pre-News Consideration
 
I’d definitely be looking to BUY AUDUSD prior to the release… as a matter of fact, I may even look at AUDNZD as this pair has dropped significantly lately.

Definition
 
"The Consumer Price Index (CPI) measures the rate of inflation (i.e., the rate of price changes) experienced by consumers when purchasing goods and services. A rising trend has a positive effect on the nation´s currency. The primary objective of the central bank is to achieve price stability; when inflation rises above an annualized rate of approximately 2%, they will respond by raising interest rates to bring prices down. Higher interest rates attract foreign investment, thus increasing demand for the nation´s currency. CPI is one of the most closely watched indicators and will usually have a high impact upon release."

Thanks,