AUD/USD: Trading the Australian CPI Apr 2015

The Australian CPI (Consumer Price Index), which is released each quarter, is an inflation index which measures the change in the price of goods and services charged to consumers. A reading which is higher than the market forecast is bullish for the Australian dollar.

Here are all the details, and 5 possible outcomes for AUD/USD.

Published on Wednesday at 1:30 GMT.

Indicator Background

Analysts consider CPI one of the most important economic indicators, and the release of the Australian CPI can have a significant effect on the direction of AUD/USD.

CPI has been in a downspin, and the Q4 report came in at 0.2%, compared to 0.5% in the previous quarter. This is certainly a cause for concern. The downward trend is expected to continue in the Q1 release, as the forecast stands at 0.1%.

Sentiments and levels

AUD/USD pushed higher last week, as the greenback had a dismal week against its rivals. However, the pair has lost ground at the start of the week. Market sentiment remains high over the US economy, and a few strong US releases could quickly erase last week’s poor performance by the US dollar. The RBA wants to see an exchange rate closer to 75 cents, so we can expect the central bank to continue to “talk down” the pair. A rate cut is not expected in the next little while, but remains a distinct possibility. So, the overall sentiment is bearish on AUD/USD towards this release.

Technical levels, from top to bottom: 0.8077, 0.7978, 0.7799, 0.7692, 0.7528, and 0.7403.

5 Scenarios

1. Within expectations: -0.2% to +0.2%. In this scenario, AUD/USD could show some slight fluctuation, but it is likely to remain within range, without breaking any levels.
2. Above expectations: 0.3% to 0.7%: A stronger reading than predicted could push the pair above one resistance line.
3. Well above expectations: Above 0.7%: An unexpectedly sharp rise in inflation could push AUD/USD upwards, with two or more lines of resistance at risk.
4. Below expectations: -0.5% to -0.1%: A reading in negative territory could pull the pair downwards, with one support level at risk.
5. Well below expectations: Below  -0.5%: A sharp decline in inflation could result in the pair breaking below two or more support levels.

For more on the Aussie, see the AUD/USD.

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